With supply chain issues at an all time high, it has never been more critical than now for eCommerce businesses to have a strong inventory management system to keep up with consumer demand and to be prepared for growth into new markets at a moment’s notice.
To those who have found their inventory sweet spot, this not only ensures they have product for the high consumer demands, but also opens doors to a trend shift in financing – from a more traditional method to new opportunities focused in revenue-based and inventory financing.
Alternative financing is quickly gaining popularity among eCommerce companies as traditional bank loans are time-consuming and slow to attain.
How Does it Work?
Revenue-based financing is an alternative funding source where eCommerce businesses receive funding based on potential future revenue. More importantly, it does not require collateral and the payments are flexible and typically a percentage of revenue to help with months with smaller cash flows.
Pros & Cons
Traditional bank loans are more rigid with fixed monthly payments and typically require collateral – something that can be challenging in an economy struggling with inflation, supply chain issues with getting products to consumers, warehouse shortages and consumers purchasing an ongoing record number of products.
If all of your inventory is stuck on a shipping container and you’re unable to sell product and bring in cash, with traditional funding you would have to find a way to make the payment. Whereas, with the alternative financing, you would have the flexibility to adjust the payment on the low sales month.
Venture capitalists or angel investors are another way to leverage cash investments for growth in eCommerce. 77% of startups begin with personal savings and founders may not have opted for an infusion of capital that dilutes their percentage ownership. However, adding investors will help the business grow quickly through the cash infusion and could potentially come with expertise and advise for growth into new markets.
Though angel investors tend to be more relaxed and hands-off than venture capitalists, both will require repayment with interest and usually a piece of the profits. In this case, revenue-based financing would be an optimal choice because it will not dilute their investment, yet allow the business to grow through the infusion of capital.
Cryptocurrencies have seen a huge boom in Australia, with the largest bank allowing customers to trade them through its app as of November 2021. As eCommerce business owners consider receiving crypto payments from consumers in markets outside of the US, the risks are less known.
Risks of credit card fraud are well known and retailers are prepared for a predetermined level of chargebacks, but crypto is not subject to the same consumer protection measures that mainstream forms of payment have in place.
Cryptocurrency is also highly volatile and prices fluctuate wildly and quickly. If your company accepts payment and does not exchange quickly enough, the value could plummet overnight leaving you with pennies to cover inventory expenses.
Are Your Processes in Place?
No matter which path you select for financing, traditional and alternative funding require your business to have systems in place to automate and reduce human error so your business is ultimately as efficient as possible.
In an economy where eCommerce businesses are having to grow into new global markets overnight due to supply chains, more traditional bank loans prove to be quite challenging.
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As complications continue to arise around the world and supply chain issues continue to grow, it is time to enhance your systems through automation with OPAL to keep up with this competitive industry so that your eCommerce business is ready to grow through alternative financing options and move into new markets.
To learn more about how OPAL has partnered with many to scale their business to new levels of success, click here.
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