The Complete Guide to the Best eCommerce Financing Options

eCommerce Financing

The Global eCommerce market is expected to reach the 4.5 Trillion dollar mark by the end of 2021. And E-commerce financing is one of the primary reasons behind this. It enables the consumers to divide the payment amount of their purchase into multiple payments that they can repay over time. Thus online stores can increase their sales whereas consumers can purchase things they want to without worrying

Ecommerce financing is one type of customer credit that is slowly growing in popularity with an annual growth rate of 3.1%. If you are managing an eCommerce website and looking to find a way to avail of Ecommerce financing for both of you and your consumers, then this article is for you.

Here we are going to discuss everything about Ecommerce financing and the best eCommerce financing options for your online store.

What is eCommerce financing?

eCommerce financing is a funding solution that eCommerce stores provide to their consumers while purchasing from their online stores. This process enables the consumers with more flexibility and purchasing power.  Ecommerce financing, also popular as a Point-of-sale system, allows the consumers to buy their favorite expensive items now and pay the purchase amount later.

This financing technique is not only beneficial for consumers but also for online sellers. eCommerce financing helps online businesses to increase their sales, compensate their marketing expenses, and grow online. While consumers utilize it to buy things they want or need now and pay later.

The appetite for eCommerce financing has surged over the last few years. Especially last year, due to pandemics, Ecommerce financing has witnessed exponential growth in demand. This has led the retailers to efficiently handle eCommerce businesses and consumers to purchase important things at the time of need without worrying about the purchase amount as they can repay it with convenient monthly installments.

Ecommerce financing solutions for retailers:

These are the best financing solutions for your eCommerce businesses.

  1. Term Loan: A term loan is a type of funding where an eCommerce business receives a specific amount of funds guided with a specific repayment schedule. These loans can be granted for both short periods like 1 year and long periods up to 25 years. You need to pay a fixed amount of money every month till the end of the loan term.
  2. Line of Credit: A line of credit is a pre-approved loan amount for your eCommerce business. In this Ecommerce financing option, you can withdraw money from the pre-approved amount according to your needs.

This financing option is ideal for ongoing expenditures and emergencies. The best part about the line of credit is that you do not need to pay interest for the approved amount. You just have to pay a small fee for the amount you withdraw from it.

  1. Asset-based loan: In this financing option, you have to lend something as a security such as property to the financing company to avail the funding. The financing company uses a loan-to-value ratio to decide the amount of loan.

These loans are very quick to apply with lower interest rates.

  1. Invoice factoring: Invoice factoring is a type of financing where the cash gets unlocked only when your customer purchases a product or service. For example, your customer gave a large order but you are short in cash to purchase the stock.

Here the financing company will provide funds to purchase the stock. And once your customer pays, the company will deduct its money and some extra fee from your profit.

  1. Business Credit Cards: Business credit cards are one of the most efficient funding sources for your eCommerce business. It is the best option for eCommerce startups that are struggling to maintain the cash flow.

Many credit cards offer multiple facilities including cash-backs. You can also keep track of your personal and professional finances.

Here is the checklist that will help you pick up the best eCommerce financing solution for your online business.

  • Evaluate how much time and effort you need to implement the solution on your website.
  • Does the solution enhance your customer experience? Choose the solution that is providing a seamless user experience to your customers.
  • Is the solution ensuring secured payments? Make sure yur customers are not facing any payment risks.
  • See if the Ecommerce financing solution is customizable or not. You can easily change the color or tone of a customizable solution so that it matches your eCommerce site.
  • Does the solution help you out with enough data that you can utilize to improve your eCommerce service?

Ask these questions before choosing an Ecommerce financing solution for your online store.

How do the eCommerce financing options function for retailers?

Ecommerce financing works differently for retailers and consumers.

As you are running an online store, you may require funds to maintain cash flow in your business. eCommerce financing provides you with the fund you need to run your business procedures efficiently. This includes purchasing equipment, paying staff, providing financing solutions to the consumers, etc.

Here is how things work.

  • First, the financing company will provide you with some payment options to choose from. You can select whether you want to pay monthly installments and also the amount per installment.
  • An API is set up to ensure a continuous exchange of information between the finance provider and the eCommerce site. This will help the finance provider to perform real-time analysis of stock availability in the godown and multiple payment records. This automation minimizes the risk of human errors.
  • When all the systems are completely linked, the financing company transfers the payment amount to the retailer’s account.
  • Then the repayment process begins. You need to start repaying the loan amount according to the payment option you have chosen. Try not to miss the deadline of payment as it will negatively impact your credit score.
  • Once all the loan amount is repaid, the financing company will analyze the seller’s performance and then the financing process starts to gain.

Ecommerce financing solutions for consumers

Ecommerce financing is very popular among consumers, and it is gradually turning into one of the most essential payment methods. These financial solutions are uplifting the conversion rates of eCommerce sites up to 25% and the average purchase value has increased more than 80%.

These eCommerce financing solutions have provided multiple payment options associated with

incredible benefits to the consumers. Here I am listing down the top Ecommerce financing solutions to the consumers.

  1. Affirm: Affirm provides incredible flexibility to the consumers for paying the product amount. Affirm gives very efficient and customizable solutions to the eCommerce websites that are beneficial for both the retailers and the consumers.
  2. Zibby: Zibby is an eCommerce financing solution that focuses on under-bank consumers. It requires less than a minute for a customer to click on the Zibby button and fill in the basic details before getting approved. You do not have to have very good credit scores to avail of loans.
  3. AfterPay: AfterPay offers a swift way of payment to consumers. There are thousands of eCommerce stores and sites that have implemented AfterPay, and the number is still growing. The level of convenience that Afterpay provides attracts a lot of consumers and increases conversion rates of eCommerce websites with convenient payment options.
  4. Pay4later: Pay4later is a very popular Ecommerce financing solution especially in the UK that provides instant credit to consumers with 0% interest rates. This is a very safe and efficient finance solution that allows 0% interest rates for up to 12 months. And very minimum interest rates up to 36 months.
  5. Zippay: Zippay allows loans to the consumers up to $1000 that they can repay with flexible amounts over time.

These Ecommerce financing solutions have made it super convenient for customers to shop from different eCommerce sites. They can repay the purchase amounts by splitting it into multiple monthly, weekly, or quarterly installments.

How do the eCommerce financing options function for consumers

For consumers, Ecommerce financing revolves around the concept of buy and pay later. Here is how a consumer can avail of the eCommerce financing facility.

  • After purchasing the product or service from the eCommerce store, at the time of checking out, the consumer applies for the best financing solution according to his/her requirement.
  • There are multiple financing options a consumer can choose from. Some of them come with zero additional charges whereas others charge a small fee on the purchase amount. The more expensive the cost is, the higher the fee.
  • Then the total cost amount of purchase and personal details of the customer is then sent to the financing company.
  • Then the financing company decides to whether accept the application or deny it.
  • After the approval, the customer needs to decide the loan time period that varies from 3 months to 36 months.
  • Once the checkout is done, the eCommerce business owner gets paid upfront, and all the risk of non-payment is borne by the financing companies.

Conclusion: These Ecommerce financing solutions will enable you to maintain regular cash flows in your business and get your eCommerce business closer to success. As the nature of the business, it demands more than just traditional business loans. You need more merchandise, more staff, more equipment, etc, and these finance solutions will help you out.

Ecommerce financing has also presented a lot of advantages for consumers as well. With these financing solutions, consumers can buy their dream products without worrying about the purchase amount. They can repay the bill at their own pace with convenient monthly installments.

Thus eCommerce financing has incredibly benefited eCommerce businesses across the globe by skyrocketing the conversion rates and average purchase amounts.