Different Types of E-commerce Finance

Different Types of E-commerce Finance | 4-minute read

Whether it’s to expand your inventory or to improve your working capital, it can be expected that somewhere along the line, as an e-commerce store owner, you’ll find yourself needing financial resources to grow your business.

E-commerce businesses may need finance for various reasons and with access to a variety of e-commerce financing options, e-commerce entrepreneurs can quickly access funds in exchange for a cut of their future sales.

The money borrowed, or on finance, usually must be paid back based on the terms agreed upon between the lender and the e-commerce business. For example, this could be by direct debit payment, automatic withdrawals or according to repayment terms.

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E-commerce financing provides online retailers like yourself with the funds they need to get started or scale their business. Funds can come from a variety of different types of e-commerce finance, which we will explore more throughout this blog.

Different Types of E-Commerce Finance

Here are some examples of the different types of e-commerce finance:

Invoice Discounting

Invoice discounting is when a finance provider lends cash to a company up to the value of its unpaid invoices. This acts as security for a short-term loan. Usually, the provider will charge a pre-agreed fee of around 1-3% of the loan. Once the buyer has paid the invoice, the supplier (the e-commerce store) pays back the borrowed amount plus the service fee.

This provides e-commerce business owners access to working capital that would otherwise be tied up in unpaid invoices. It is also quick and easy to do, with funds typically processes and released the same day.

Stock Finance

Stock financed is often referred to as inventory finance and is the process of allowing e-commerce businesses to borrow capital against their goods. For example, the lender will advance funds based on the value of the inventory. The amount offered often varies depending on the business, where stock is stored, and how fast the stock is moving.

When stock has been delivered to a customer and an invoice has been sent, the e-commerce business will use the funding from the invoice to repay the lender. Many e-commerce stores rely on stock finance to purchase new inventory and keep up with demand.

Cashflow Finance

Cashflow finance is a type of business loan. They primarily focus on an e-commerce store’s anticipated future revenue rather than the assets they currently possess. Lenders will use the information from the cashflow forecast, accounts payable, and accounts receivable, to project future cash flow and whether they wish to lend funds.

This is a suitable type of e-commerce finance for companies with high revenue but few physical assets. Repayments are usually made according to an agreed percentage of future sales until the loan amount has been repaid.

Assets Finance

Asset financing allows e-commerce businesses to use its assets as security to borrow money or take out a loan against what they already own. Such assets can include equipment, machinery, or vehicles.

The lender or finance service provider will release funds to purchase or lease the assets, and the e-commerce business will repay the loan over time. With asset finance, the lender owns the asset until the finance has been paid back in full.

Straight Business Loan

A straight business loan is a traditional term loan where money is paid upfront, and the borrower (the e-commerce business) repays it over a fixed period with interest. When applying for a business loan, lender will assess business age, credit score, income, assets, and business sector among other factors.

Typically, business loans are acquired for large investments, expansions, and expenses and are provided by e-commerce market experts and investors.

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If you’ve got an online store, we have the best solution for you. Providing you with a financial arm to your business through our sector experience and skills with innovative technologies. To see how we can help you maximise the scalability of your e-commerce brand all year round, get in touch with Unicorn Accounting today or click here to get a free quote.

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