E-commerce financing is a funding solution that provides business loans to web-based merchants (shops).
eCommerce lending helps online sellers grow, cover marketing expenses and increase sales.
Online sellers use E-commerce funding to stabilise the cash flow and to cope with payments obligations. Those payments duties include marketing expenses such as Ads and affiliates programmes.
eCommerce sales have surged in the past years. The current pandemic led to many retail shops not able to sell thru regular channels.
Creating a new digital image of your shop can be time-consuming and costly.
Key Opinion Leaders (KOL), a.k.a influencers and content creators, play an essential role in the eCommerce ecosystem and growth. Those marketing expenses have a heavy toll on your business growth.
A growing number of businesses are using eCommerce corporate grants to access funding.
What are the Participants Involved In E-Commerce Financing?
There are four parties involved 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 worldwide & 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
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.
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 to check the requirements.
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)
- A credit line is approved
- The funds are transferred