Working Capital: Your Ticket to a Healthy ECommerce Business

working. capital for a healthy ecommerce store

March 3, 2021

In every business, customer satisfaction and revenue growth tend to work hand-in-hand. The happier your customers, the more purchases of your products, the better your bottom line.

But anyone with eCommerce experience knows it’s not so simple. Unexpected expenses, increased liabilities and cash flow disruptions can stagnate or even derail your growth. And while working capital challenges are par for the course with any business, the funding options for eCommerce companies are far fewer than their brick-and-mortar counterparts.

If you’re trying to access working capital via a bank loan or investor equity, funds can typically take 3 to 6 months to hit your account. In the meantime, your hands are tied. While your competitors take advantage of peak season sales, discount inventory or exciting new marketing campaigns, you’re spinning your wheels just to restock inventory and pay your team. 

It’s a tough position to be in. But it’s also a completely common part of the business journey, and today there are more options than ever before for accessing flexible, transparent working capital for your eCommerce business.

But which funding solutions offer interest rates and payback terms that will actually fuel your growth?

In this article, we’ll help you understand the real impact of working capital in driving eCommerce ROI and the types of funding sources to look for to make sure your working capital is, well…working


What Is Working Capital? And Why It’s Crucial for Your Ecommerce Business

In a recent survey, over 32% of eCommerce companies listed ‘running out of cash’ as one of the top five reasons they went out of business. So what is working capital, exactly?

Working capital is the cash flow your business has available to cover current expenses. If at any time your expenses—making payroll, inventory purchases, costs of daily operations, etc.—exceed your assets, working capital can bridge those temporary gaps and keep your business running smoothly.

In other words, working capital is what keeps your business on the right side of industry statistics.

If you’re not already making plans to secure working capital for your eCommerce business, now’s the time. Acquiring working capital from a lender, however, isn’t always a straightforward process. Let’s break it down.


Why Is Working Capital Still a Challenge for Ecommerce Owners? (Hint: Traditional Lenders Don’t Get It.)

Despite the jet-fuelled growth of the global eCommerce industry, traditional lenders such as banks, aren’t always an option for sellers. 

In fact, only about 13.5% of small businesses qualify for a traditional big bank loan, and of that percentage, the majority are brick and mortar. Since eCommerce is still a comparatively new industry, most banks stick with who they know. Not only that, the underwriting process can be a bit more complex for online sellers. Factors like algorithm changes, data breaches, and website downtime can all play a role in loss of sales, which banks may deem too risky.   

In recent years, online funding platforms have filled the gap left by big banks and have become an increasingly reliable way for eCommerce owners to access working capital. With a completely digital application process, turnaround is much quicker. Depending on the platform you choose, you can have access to cash flow in a couple of days—something you just can’t count on with traditional lenders.

Let’s take a closer look at the different ways working capital can help grow your eCommerce business.


What Problems Does Working Capital Solve?

If you’ve been in the eCommerce game for any amount of time, you know one thing for sure: business expenses add up. 

And while the costs and liabilities keep coming, many eCommerce companies may not receive payment of their marketplace sales until weeks later. Working capital solves this problem in the following ways:

Smarter Inventory Purchasing

ECommerce stores must prepare in advance for high-volume sales periods. Peak seasons such as holidays, Christmas, Black Friday, and back-to-school shopping require more inventory in stock to reduce backorders and customer churn. Working capital helps you purchase excess inventory when you need it and lock in discount rates from your suppliers.

Better Advertising Campaigns

When most of your cash is used for restocking inventory and taking care of operational expenses, it can be hard to scale your marketing. This is especially true for new sellers who are just picking up momentum in their business. With working capital, you get access to additional funds to spend on digital marketing and advertising, including ad placements and email campaigns to help you boost cash flow during peak seasons and improve your overall financial position for the year. 

Expanding into New Products or Markets

Simply put, it takes money to make money. As an entrepreneur, you’re looking for ways to expand your market foothold: creating additional product lines, diversifying product choices, launching into a new online marketplace, etc. That said, more inventory requires larger storage space, and new markets introduce your products to wider demographics. Working capital can cover the costs of a new fulfillment center, product description translations, new marketplace fees, and more. 

Meeting Suppliers’ Payment Terms

Unlike B2C sales, where customers pay upfront upon receipt of a product, many B2B customers rely on cash flow to pay back their vendors and suppliers after making sales. A lack of sales, however, can disrupt their payment consistency. As a wholesaler or manufacturer, working capital serves as a crucial backup plan. With access to working capital, you’ll have the cash flow you need to produce and replace products sold even in a worst-case scenario.   

Boosting Team Capacity

As sales grow, so do operations and customer demand. Remember, any type of delay can contribute to a loss of sales. Likewise, poor customer experience is a sure way to discourage consumers from purchasing from your business again. Whether it’s to invest in performance metric tools, new delivery options, or to simply hire more staff, working capital gives your business the flexibility to get the help you need when you need it.

Uninterrupted Business Momentum

Just as with seasonal surges, eCommerce stores have to prepare for slow seasons. For example, sweater sales will slow during the summer season and vice versa for swimwear. If your products are season-based, working capital can be the financial cushion you need to keep your business running, such as ads for off-season discounts and website updates.


What Are Some Other Scenarios Where Working Capital Can Help Grow Your Business?

As with any business, eCommerce sellers have to account for hiccups in business performance. According to a Federal Reserve Bank report, 40% of companies struggle to pay operating expenses. Even large-scale businesses rely on working capital to avoid pitfalls. 

As an eCommerce business, here are some common scenarios where working capital can help:

Marketplace Rankings

If you’re selling on Amazon, you know how much work it takes for your products to rank high in search results: excellent customer retention, conversion rate, relevancy factors, the list goes on and on. This requires significant time and money for professional images, fast shipment, engaging product descriptions, responding to customer concerns, inventory replenishment and more. Without taking the time to really invest in developing a marketplace presence, your ranking efforts (and inevitably sales) can take a hit.    

Crisis Management

While seasonal peaks are sometimes predictable, a crisis is anything but. The pandemic of 2020 was a perfect example. Even though eCommerce sales experienced a 40% growth during the year, backorders, customer complaints, and lack of employees were also at an all-time high. This is where working capital once again proved crucial, enabling many retail and fulfillment centers to perform a much-needed hiring surge to help navigate the unexpected. 

Now that you have an idea of how to use working capital to get maximum ROI for your business, let’s compare the different ways you can access it.


Working Capital for ECommerce: Bank Loans vs. Credit Limits

Even if your eCommerce business qualifies for a traditional loan, such as through a bank or traditional lender, it’s still a good idea to take the time to compare terms with newer, alternative sources of eCommerce funding

Below is a quick summary of key differences between traditional bank loans and credit limits from a specialized eCommerce lender. 

  • Credit Impact

Since the bank underwriting process uses credit factors, applying for a bank loan can negatively impact your credit score. Alternatively, many online funding providers don’t require a credit score and will analyze the company’s overall performance instead.  

  • Prepayment Penalties

Banks intend to make money from interest rates on their loans. As a result, paying off your loan early may come with a fee. On the contrary, many alternative working capital solutions and lines of credit allow you to borrow as needed and repay without penalty, as long as it’s within the agreed payback terms. 

  • Fund Receival Time

Most eCommerce businesses that request funding need it sooner rather than later. While a bank loan approval process can take at least three months, online funding options use performance-based metrics that can result in next-day approval. 

Keep in mind that not all working capital solutions are the same, even if they’re from an online lending platform. Terms vary depending on the company, which brings us to our next point. As with every financial decision you make, always take the time to do your due diligence so you can make the best choice for your business.


What to Look for When Choosing a Line of Working Capital or Credit Limit Solution

The first most important criterion when choosing a working capital provider is that they cater to eCommerce customers. A provider who understands the online selling experience will most likely offer:


  1. Multiple funding solutions to fit your business needs
  2. Flexible repayment options 
  3. Qualifications that are reasonable for eCommerce stores 

ECommerce is continually evolving. An ideal funding provider will be able to keep up with the changing eCommerce ecosystem and adjust their funding options to keep pace with those changes. 

Meet SellersFunding’s Credit Limit Solution: Flexible Working Capital Designed for ECommerce

At SellersFunding, eCommerce is in our DNA

Our funding solutions cater solely to eCommerce sellers like you. Through the SellersFunding Credit Limit, we provide up to $1 million in accessible working capital, with the flexibility to withdraw as needed. We connect with Amazon, Shopify, and several other major marketplaces, so you can receive your working capital and get back to business in as little as 48 hours.

Unlike most funding organizations, at SellersFunding we look at multiple factors when defining our proposals to offer fair, flexible and affordable working capital solutions that will actually help you grow. In fact, over 12,000 of our clients have experienced an 85% average increase in sales in just one year after partnering with us.

Apply for a Credit Limit today and see how easy it can be to get the working capital you need.