Working Capital Solutions for Ecommerce Sellers and Marketplaces

Every ecommerce business needs working capital, especially when you’re setting up. The cash from customers won’t start coming in until you’re in a position to deliver your products or services. But it doesn’t end there. 

Liquidity is critical, especially when cash flow can be up and down or when you want to expand your business into new markets. So, when you need funding where should you go?

What is working capital?

The strict definition of working capital is calculated by summing up current assets and then subtracting current liabilities. However, it’s easier to think of it as the money you need to run your daily operations, and it can be looked at as a measure of your short-term financial wellbeing. You need liquidity to meet both repeat commitments, such as wages, paying suppliers, office expenses and the like, and as a buffer against unexpected outgoings that might arise. Any assets that can be converted into cash within 12 months count as current assets, including cash, accounts receivable and stock inventory. Your current liabilities are your short-term obligations, including money you owe suppliers and ongoing debt repayment.

Good liquidity control is vital to the health of your business, and having a handle on both short- and long-term finance contributes to successful business planning. However, holding too much working capital is frowned upon as there may be opportunities that are being missed.

Why is working capital especially important for ecommerce sellers and marketplaces?

There are a number of reasons why ecommerce sellers and marketplaces need to maintain a healthy level of working capital, including:

• The need to purchase inventory in advance of sales.
• To act as a buffer against the effects of seasonal or uneven cash flow.
• To cover ongoing business expenses as they arise.
• To cover daily operations while waiting for marketplace payouts which may be made in arrears.
• To fund the costs of international operations, including conversion fees and duties.

Access to working capital loans for ecommerce financing

Working capital can be accessed through a variety of means. The most traditional method is via bank loans from traditional banks. Your bank might offer you a credit line, a short-term loan or overdraft facility. However, you’ll generally need to show a certain length of operating history, and have a good credit rating and possibly some form of collateral for the loan. The criteria are generally strict, and it can be an expensive way to finance your business.

Another option is to explore working capital solutions offered by fintech providers, such as Payoneer’s Capital Advance. This usually comes in the form of revenue-based financing, short-term capital loans, invoice financing or merchant advances. Approval times are quicker than those of the traditional banks and, as they are based on real-time sales or business payment data, there is generally no need for collateral.

Some marketplaces will also extend funding to sellers based on their performance on the site. Access can be fast, making it ideal for inventory financing. The marketplaces who provide marketplace funding include:

• Amazon
• Walmart Marketplace
• EBay
• Shopify

There are also government loans and SME support programs you could try, supplier or trade credit, venture capital firms for small businesses, or crowd-funding and peer-to-peer lending. Not so recommended is raising working capital through invoice factoring or by racking up credit card debt and going overdrawn.

What about inventory financing?

You’re probably asking how inventory finance differs from other forms of working capital loans. While working capital can generally be used to fund any of your ongoing business operations, inventory financing can only be used for stock purchases, and the stock bought with it acts as collateral to the loan. The money is repaid as the stock is sold, and its main purpose is to improve cash flow over the short term and avoid understocking.

Capital Advance from Payoneer: Smart ecommerce financing

If you have a Payoneer account and use the ecommerce payment solution platform to get paid by clients, you could be eligible for Payoneer Capital Advance to help fund your business operations for global growth. It’s a convenient option for small ecommerce businesses seeking an unsecured working capital solution.

Capital Advance is designed to support ecommerce sellers, entrepreneurs, and freelancers by offering funding based on their earnings history, with offers that can reach up to 140% of monthly trade volume (capped at USD 750k), subject to eligibility and availability.

• Capital Advance is available by invitation only and cannot be applied for directly.
• The amount offered is based on your earnings history on the platform, so there are no credit checks
• The more you earn, the bigger Capital Advance offer you’ll receive
• When you accept a Capital Advance offer, funds are typically made available quickly in your Payoneer account.
• Repayment is by collection of a fixed percentage from future earnings
• The program offers flexible funding options to help manage day-to-day expenses and support business growth.
• Capital Advance uses a fixed, upfront fee, so you know the total cost before accepting an offer.

*Capital Advance offers are subject to eligibility, availability, and regional restrictions. Terms and conditions apply. This content is for informational purposes only and does not constitute financial or legal advice.