eCommerce financing: A Guide 

The outlook for the eCommerce industry is very promising – sales worldwide are set to hit $4.8 trillion USD by 2025. 

But scaling your eCommerce business in such a competitive and high-growth environment can be challenging. 

After all, taking advantage of critical opportunities to accelerate growth is difficult without cashflow… 

Many are now looking to eCommerce financing to help overcome this common challenge. 

Let’s take a closer look at what eCommerce financing is (with examples) and how it can drive growth. 

What is eCommerce? 

eCommerce (electronic commerce) is the buying and selling of goods and services online. 

When eCommerce is mentioned, business-to-customer (B2C) retail selling is usually the first thing that comes to mind for most people. 

However, offering an eCommerce channel has become a necessity for many businesses across many different industries and types of business, including business-to-business (B2B). 

This means that the distinction between specialist eCommerce websites (sometimes called eStores) and regular websites is diminishing. 

To the end user, a good eCommerce experience is seamless and simple. But in reality, it is actually made up of multiple technologies, services, and supply chains. 

For example, one essential component is online payments processing. This in turn includes transactions, discounts, refunds, promotions, compliance, and more. 

What is eCommerce financing? 

‘eCommerce financing‘ (often used interchangeably with ‘eCommerce funding‘) is simply a shorthand way of saying ‘financing for eCommerce businesses‘. 

When talking about eCommerce financing, we are essentially talking about financing solutions that particularly suit eCommerce businesses. 

This is because there isn’t a separate range of financing solutions that are exclusive to eCommerce. 

Instead, eCommerce businesses use general financing options also available to most non-eCommerce businesses. 

However, these solutions can be tailored to suit specific eCommerce needs – with rates and add-on services specific to eCommerce. 

What’s the difference between eCommerce financing and customer financing? 

Customer financing is when a business provides (often via a third party) their customers with financing, usually at point of sale (POS). 

Customer financing is playing an increasingly large role in eCommerce. From the businesses’ point of view, making a line of credit available to customers can be a powerful tool to increase spend and loyalty. 

From the customer’s point of view, it enables them to pay off larger purchases in more manageable payments. 

This is different to eCommerce financing, which is when an eCommerce business receives financing from a third party. 

This might be deployed for a number of reasons, including recovering cashflow, investing in stock, equipment or funding a specific campaign, etc. 

Which financing model will suit your eCommerce business? 

Whilst some aspects of eCommerce can provide consistent and predictable growth for a business, others can be more volatile. 

Before you think about how to raise capital, you should decide where and when to invest it. 

We have listed three important considerations below. They don’t cover everything you need to think about, but we hope they will at least stimulate and inform your decision-making process. 

3 key considerations for eCommerce financing decision-making 

1. Globalisation 

eCommerce businesses are often at the vanguard of globalization. 

This brings unique challenges and opportunities related to supply chains, trends, and economic, political and even cultural conditions. These can all significantly impact sales and inventories. 

There are, of course, some ‘black swan events‘ which can’t be directly foreseen. However, before financial decisions are made regarding your eCommerce business, current marketplace considerations should at least be considered and different scenarios planned for. 

For example, at the beginning of the global Covid pandemic and associated lockdowns in 2020, eCommerce businesses saw a sharp spike in growth worldwide. 

This meant it was a great time for many businesses to invest in their stock, online marketing and other associated expenses. 

However, by March 2022, this rapid rate of growth was showing signs of reversing. Though this varied between industries and countries, it shows how unpredictable market forces can shape outcomes. 

2. Digitisation 

The digital landscape changes quickly. A big part of a successful eCommerce strategy is digitisation of processes and systems. This depends on a businesses’ ability to be flexible and adapt. 

One aspect of this is integration. From CRMs to social media, the ability to scale and share data between platforms can have an enormous impact on growth. 

For example, C-commerce (conversational commerce), is becoming increasingly popular in eCommerce. One recent global Meta survey found that 2 in 3 participants had messaged a business directly before. 

Adapting to C-commerce requires a rapid allocation of resources and integration with other sales and marketing CRMs. 

For an eCommerce business with the need or opportunity to accelerate digitalization, eCommerce financing options can offer efficient and timely solutions. 

3. Cash conversion cycle (CCC) 

The cash conversion cycle (CCC) (also known simply as the cash cycle or the net operating cycle) is a metric that is used to measure how long the process (in days) takes between investment in resources and inventory, sales, and then receipt of funds. 

The more days a CCC takes, the longer cashflow is held up. Each industry and specific business will have its own averages and ranges. 

One benefit of eCommerce financing solutions is the relative speed for gaining access to funds. 

This advantage needs to be weighed against other factors that are important to your business, but for online businesses with high CCCs, financing can provide a crucial boost. 

4 popular options available for your eCommerce business 

The financing solution a company chooses depends on several factors, including its age, industry, and scale. 

There is also the question of timing. For example, companies looking to invest in projects with a long-term return of investment (ROI) (infrastructure, new market entry, etc.) might need to consider solutions that include giving up equity. The alternatives may require taking on too much financial risk.  

We have purposely not included well-known and long-established options such as business loans from banks and overdrafts added to your business bank account here. 

This is simply because we want to look at the more modern alternatives which may better suit an eCommerce businesses looking for new ways to access working capital. 

1. Merchant cash advance 

A merchant cash advance is a type of financing generally used by small businesses. A finance provider gives the business a lump sum in exchange for a fixed percentage of future sales for a pre-determined period. 

The advantage of this system lies in the simplicity and certainty that repayments will track future earnings. 

Providers can check simple payments metrics before they provide the advance and there are rarely conditions attached on specifically how the advance may be spent. 

Businesses can also rest assured that they aren’t in debt and won’t be paying interest for the amount received. 

2. Line of credit 

Lines of credit (also known as ‘revolving credit facilities’ or ‘alternative overdrafts’) are credit lines made available to businesses on an ad hoc basis. 

These don’t require a specific amount of credit to be taken. This is particularly useful for businesses looking for flexible solutions to prepare for uncertain outcomes. 

In eCommerce, new costs or demand might appear suddenly. Having a line of credit (for a pre-determined value) available not only provides a practical financial solution, but also peace of mind. 

3. Venture debt 

Venture debt (also known as ‘venture leasing’) is a type of debt financing. Your company’s latest capital equity round is used to underwrite a loan. 

This type financing is used primarily by high-growth startups and other companies. 

It is typically used to raise working capital for a variety of needs, such as buying equipment and other essential expenses. 

4. Invoice financing 

Invoice financing is an umbrella term for several different types of relatively similar finance methods, including invoice factoring. 

In short, invoice financing is when companies use their issued invoices as collateral to access credit early via a third party. 

Most of the invoice value is then provided by a third-party lender up front, who takes a small percentage of the revenue as payment. The precise cost of invoice factoring depends on several different factors. 

Meanwhile, whether a client knows that they are in fact now paying third party varies depending on providers. 

By freeing up working capital without relying on a traditional repayment loan process, invoice financing offers a safe way for companies to tactically allocate their capital.

eCommerce financing for business-to-business (B2B) customers 

Different considerations may need to be taken into account for B2B financing. 

B2B companies often have a long CCC. They rely on their clients to first secure funds for orders that are often less frequent but larger than B2C sales. So, accessing funds to stock up inventory for B2B transactions can be even more critical. 

As with eCommerce financing more broadly, B2B companies are also becoming aware of financing provers outside of the traditional banking system. 

This is due mainly to the more flexible lending and repayments options and quicker access to credit. 

Funding for your customers 

While eCommerce companies may require funding options to achieve their specific business goals, they may wish to consider offering funding options to their own clients. 

This could enable clients to make purchases that they may otherwise be unable to make due to cash flow issues. Offering a line of credit to their customers can mean increased sales and greater loyalty. 

At TreviPay, for example, financing is easy when it takes just 30 seconds for us to approve lines of credit up to US $250,000. 

Conclusion 

eCommerce is a dynamic and fast-growing sector. 

Its primary appeal is its frictionless and simple sales process. But in order to deliver this, eCommerce businesses are likely to rely on complex business processes. 

Furthermore, in order to capitalize on opportunities, stay ahead of competition and grow, businesses need to be able to access funds quickly. 

Business finance was previously dominated by traditional banks, who relied on a business’ good credit score and lengthy paper-based processes for lending decisions. 

Now there are a multitude of new alternative lenders and fintech companies offering quicker access to more flexible financing options. 

While some eCommerce businesses may be seeking financing for their own use, it is now possible for those companies to provide financing options for their own clients. This can increase sales and promote customer loyalty. 

eCommerce companies should evaluate a number of financial services providers but it is advisable to look beyond traditional sources to ensure they achieve the most competitive rates and optimal user experience.