E-commerce financing is a funding solution that provides working capital for web-based businesses. The solutions for your eCommerce needs include: lines of credit, micro-loans and invoice factoring.
Companies use E-commerce Financing to stabilise the cash flow and to cope with payments obligations. Those payments obligations include staff’s wages, tax and utility bills. eCommerce financing is also used to make investments like buying more stock or invest in structural transformation.
A growing number of businesses are using alternative financing to access working capital. Those alternative services are part of the trade finance products available to SMEs. For example, alternative funding sources are Invoice discounting, Invoice Financing and Supply Chain Finance.
What are the Participants Involved In E-Commerce Financing?
There are four parties in the process of e-commerce financing:
- The Seller is also known as the supplier. It is usually the applicant requesting to access the Financing Service. The seller could be a trading firm, a manufacturing company or a service provider.
- The E-Commerce Marketplace Platform (used as a warehouse to store the goods) is a world-wide & well-known digital platform. For example, eBay, Amazon or Alibaba.
- The Financing Platform is a reputable financial institution. Its role is to provide liquidity by advancing funds to the seller. Velotrade is a financial institution based in Hong Kong.
- The End Consumer is also known as the buyer. It purchases products from the seller through the e-commerce marketplace platform.
How Does E-Commerce Financing Work?
Generally speaking, the Financing Company advances capital to the seller. The seller pays back the lending company every 15 days using the revenues from the sales on the e-commerce platform.
The credit team of the financing company assesses the feasibility of the application. By doing so, the team can perform a thorough risk analysis.
The team analyses qualitative and quantitive variables when assessing the financing needs. For example:
- Yearly turnover
- Cash flow (for example the past 12 months)
- Stock analysis (flow of goods, materials management..)
- Sales performance
Thus, the eCommerce Financing Platform grants credit limits (credit allowance) to the seller.
The automation of e-commerce financing relies on the constant communication of the platforms. To guarantee a direct and continuous exchange of information, the API is set-up. The financing company through API (Application Programming Interface) accesses the e-commerce marketplace platform. By doing so, the finance provider can monitor the seller’s activities—real-time analysis of the stocks available at the warehouse and payment records. In conclusion, automation reduces the risk of human error and minimising the interaction with the seller. Implementing a web scraping API could further enhance this process, allowing for comprehensive data extraction and analysis, enabling more informed financial decisions based on a wider range of insights
Since the systems are linked up, the financing platform transfers an Advanced Payment to the seller’s bank account. The advanced payment is based on the credit allowance granted during the application.
As we know, the E-Commerce Marketplace platform handles the goods and revenues generated. Thus, monitoring the seller’s activity such as stock analysis, sales and payments.
E-commerce marketplace platforms usually repay the sellers on a bi-weekly basis. Therefore, the marketplace will transfer the funds directly into the financing company’s bank account.
Once the original Advanced Amount is fully repaid, the financing company algorithm analyses the performance of the seller. Hence, the funding process can start again.
In conclusion, the dynamic renewal and transfer of funding is an entirely automated process.
How To Apply For E-commerce Financing With Velotrade?
Your company must be registered and in business for at least 12 months with a solid credit history. It must sell products through an E-Commerce Marketplace Platform. Then you can apply for E-Commerce Financing using Velotrade today!
All online process through the Velotrade platform works as follows:
- Register your company on the Velotrade platform (first time only)
- Velotrade verifies the details of your company (fully digital, no paper documents)
- The eCommerce financing company grants you a credit line
- The API is set-up between the E-Commerce Marketplace platform and Velotrade
- The financial institution transfers funds to your bank account
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.