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The hidden dangers of delayed funding

July 09, 2024
The hidden dangers of delayed funding

What is delayed funding?

Boost your cash flow with 8fig.

Delayed funding refers to the gap between when eCommerce sellers need capital and when they actually receive it, often due to lengthy approval processes or strict lending criteria. Delayed funding is not delayed financing – which involves a lender providing funds with the expectation of future repayments, often tied to specific milestones or revenue targets. While both scenarios involve waiting for needed capital, delayed funding is about the initial gap in receiving funds, whereas delayed financing focuses on the structured repayment and the conditions under which the funds are provided. Both can hinder growth, but they impact cash flow and operational planning differently.

To learn more about eCommerce funding, click here.

In the fast-paced world of eCommerce, timely access to capital can make or break a business. Delayed funding is a common yet underestimated challenge. These delays can disrupt cash flow, hinder inventory replenishment, and stall marketing efforts, making the impact particularly severe for eCommerce sellers.

How delayed funding affects eCommerce sellers

According to a study conducted by Jessie Hagen, previously with US Bank, 82% of small businesses fail due to poor cash flow management or poor understanding of cash flow, highlighting the importance of timely funding for business sustainability.

Understanding delayed funding and its impact is crucial for eCommerce businesses. Recognizing the signs and preparing for potential delays can help sellers safeguard their operations and growth, ensuring they stay competitive in a dynamic market. Here’s everything you need to know:

The negative effects delayed funding has on business growth

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In the competitive eCommerce landscape, timely funding is crucial for maintaining smooth operations and driving business growth. Delayed funding can disrupt cash flow, hinder inventory management, and strain supplier relationships. These issues can also impact marketing efforts and customer satisfaction, ultimately threatening business stability. Understanding these disadvantages underscores the importance of securing timely financial support to avoid these detrimental effects and ensure sustained success. As Nick Robinson of Pick and Pull Sell Car says:

Sellers want a quick, seamless transition so they can more on to their next opportunity. Delayed funding undermines that, leaving them in a state of limbo and unable to plan effectively.

Nick Robinson Co-founder, Pick and Pull Sell Car

1. Cash flow issues

Delayed funding can lead to cash flow shortages, making it difficult for sellers to manage day-to-day operations, such as paying for inventory, salaries, and other operational expenses. Without sufficient cash flow, businesses might struggle to invest in growth opportunities like marketing, product development, and expanding their product lines. As Nick Drewe, founder and CEO of Wethrift, puts it:

With delayed funding, the company’s ability to scale and function efficiently becomes challenging.

Nick Drewe Founder and CEO, Wethrift

2. Inventory management

Insufficient funding can prevent timely inventory restocking, leading to stockouts and lost sales opportunities. Conversely, fear of delayed funding might push sellers to overstock, tying up capital in unsold inventory and increasing storage costs.

3. Supplier relationships

Consistent payment delays can strain relationships with suppliers, potentially leading to less favorable payment terms or even termination of contracts.

Unreliable funding can cause interruptions in the supply chain, leading to delays in order fulfillment and customer dissatisfaction.

4. Marketing and customer acquisition

Limited funds can force businesses to cut back on marketing efforts and advertising, reducing their ability to attract new customers and retain existing ones. Lack of investment in marketing during key sales periods (e.g., holidays, sales events) can result in significant revenue losses. Delayed funding means missed opportunities – whether it’s failing to stock up during peak demand seasons or being unable to leverage marketing spikes from viral moments. 

During the business’s initial stages, delayed funding can stifle momentum and limit strategic possibilities.

Guillaume Drew Founder and CEO, Or & Zon

When funding lags, so does the ability to act on these fleeting opportunities, often resulting in significant revenue loss. Guillaume Drew, founder and CEO of Or & Zon, says: “When I was scaling Or & Zon, there were instances where instead of expanding our catalog or developing a powerful marketing campaign, limited available funds left us just sustaining operations, slowing our momentum significantly and missing opportunities during crucial market trends.”

5. Technological investments

Delayed funding can hinder the adoption of new technologies and tools that are crucial for staying competitive, such as eCommerce platforms, CRM systems, and analytics tools. 

Limited financial resources hinder the ability to innovate and adapt to market trends. In a sector where being first defines leadership, delayed funding puts businesses at a severe disadvantage. Competitors with timely investments can innovate faster, adopt advanced technologies, and enhance customer satisfaction, capturing market share and leaving slower firms struggling to catch up.


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6. Customer experience

Insufficient funding can lead to cutbacks in customer service resources, affecting the overall customer experience and satisfaction. Repeated delays and service interruptions can damage the brand’s reputation, leading to negative reviews and reduced customer loyalty.

7. Financial stability

Businesses might resort to high-interest loans or credit to cover shortfalls, leading to increased debt and financial instability. Persistent funding delays can create uncertainty, making it challenging for businesses to plan for the future and make strategic decisions.

8. Competitive disadvantage

Competitors with stable funding can take advantage of market opportunities more quickly, leaving delayed-funded businesses struggling to keep up. Limited resources might force businesses to compete on price rather than value, eroding profit margins.

Strategies to avoid delayed funding

Implementing strategic measures can mitigate the risks of delayed funding, keeping businesses financially healthy and competitive. Maintain robust and transparent financials, sharp business plans, and strong investor relationships. Here’s how to stay ahead:

1. Stay prepared and organized

Keep documentation and investment plans ready to speed up funding. Ensure transparent, up-to-date financial records, and create a clear business plan highlighting potential ROI.

2. Importance of accurate cash flow forecasting

Accurate cash flow forecasting helps eCommerce businesses avoid delayed funding by projecting future inflows and outflows. Tools like QuickBooks and Xero offer features to track cash flow and maintain financial health. Regularly updating forecasts allows businesses to stay proactive, ensuring funds are available for operational expenses and unexpected costs. Use data-driven insights to anticipate funding needs and apply ahead of critical times.

8fig’s cash flow management and sales forecasting tools were created for this purpose precisely.

3. Having multiple funding sources

Relying on one funding source can be risky. Opt to diversify by combining bank loans, crowdfunding, venture capital, and invoice financing for a safety net. If one source is delayed, others can fill the gap. Platforms like Kickstarter and Indiegogo enable quick fundraising, while Fundbox offers invoice financing to manage cash flow gaps.

4. Establishing favorable payment terms

Negotiating favorable payment terms with suppliers can ease the impact of delayed funding. Secure extended terms or installment plans to manage cash flow better. Strong supplier relationships and early payment discounts can offer better terms and build trust. Clear communication and a good payment history strengthen these negotiations.

5. Using data analytics for better inventory management

Effective inventory management, supported by data analytics, helps eCommerce businesses avoid overstocking or stockouts, which can strain finances. Tools like Shopify’s inventory system or TradeGecko enable real-time monitoring, accurate demand forecasting, and data-driven purchasing decisions. This reduces excess inventory costs and ensures products are available to meet demand. Gazbia Majdi, operational manager at ShipGlobal, advises:

Just-in-time funding ensures that sellers can maintain adequate inventory levels to meet customer demand.

Gazbia Majdi Operational manager, ShipGlobal

Delayed funding can create bottlenecks, preventing investment in advanced logistics or customer support. This leads to stock shortages, delayed deliveries, and frustrated customers, damaging your reputation and hindering growth.

6. Ensuring access to credit lines when needed

A good credit score is essential for eCommerce businesses to access credit lines when needed. A strong credit history helps secure favorable loans and credit terms, providing a buffer during cash flow shortages. Regularly review credit reports, manage debts responsibly, and pay bills on time. Establish relationships with financial institutions for easier access to funds during critical periods.

7. Proactive measures against funding delays

To help eCommerce sellers mitigate the risks of delayed funding, it is essential to explore and implement proper solutions. These solutions ensure a steady cash flow, enhance financial stability, and support business growth by providing timely access to necessary funds.

8. Financial management tools

Leveraging technology can streamline funding and improve financial management. These tools track expenses, manage invoices, and forecast cash flow, providing real-time financial insights. Automated payment systems and digital wallets expedite transactions, reduce processing times, and enhance financial efficiency. This proactive approach helps manage potential funding delays effectively.

9. Different types of funding for different eCommerce sellers

Invoice financing

Invoice financing is a funding method where businesses sell their outstanding invoices to a third-party lender in exchange for immediate cash. This can be a lifesaver for eCommerce sellers waiting on payments from customers, as it provides quick access to funds that are tied up in unpaid invoices. The main advantage is improved cash flow, enabling you to cover expenses and invest in growth without waiting for customer payments.

However, the downside is that invoice financing typically comes with fees, and you might not receive the full value of your invoices. It’s a practical option for those needing quick cash, but it’s essential to weigh the costs and benefits for your specific situation.

Merchant cash advances

A merchant cash advance (MCA) provides businesses with a lump sum of cash upfront in exchange for a percentage of future sales. This type of funding is particularly popular among eCommerce sellers with consistent credit card sales. The primary advantage is the speed and ease of obtaining funds, as approval is usually quick and doesn’t require stellar credit. Plus, repayment is flexible, tied to your sales, so you pay more when business is good and less during slow periods.

On the downside, MCAs often come with high fees and can be expensive in the long run. It’s a fast and flexible funding option, but it’s crucial to understand the total cost and how it will impact your cash flow.

Crowdfunding

Crowdfunding involves raising small amounts of money from a large number of people, typically via online platforms like Kickstarter or Indiegogo. This funding method is ideal for eCommerce sellers launching new products or expanding their business, as it not only provides capital but also generates buzz and builds a community around your brand. The main advantage is that you don’t need to repay the funds or give up equity in your business.

Still, it’s important to note that successful crowdfunding campaigns require significant effort in marketing and can be time-consuming to manage. It’s a great way to validate your product idea and engage with potential customers, but be prepared for the work involved in creating a compelling campaign.

Flexible growth capital

Unlike traditional lump-sum loans, continuous capital funding ensures you have access to the right amount of cash exactly when you need it, helping you manage inventory, marketing, and operational costs smoothly. The primary advantage is that this funding adapts to your business’s growth and seasonal cycles, reducing the risk of cash flow problems. However, it’s essential to work closely with your funding provider to ensure alignment with your business goals and cash flow needs. Providers like 8fig offer tailored just-in-time funding for eCommerce sellers.

Partnering with trustworthy providers secures dependable financial backing and reduces the risk of funding delays. This approach offers a strategic partnership, enabling sustained growth and stability in a dynamic market.

Conclusion

Financial interruptions can create a vicious cycle, threatening a business’s market position and risking failure. In contrast, timely funding ensures eCommerce businesses have the capital to maintain operations, invest in growth, and respond to market demands. It enables better inventory management, strong supplier relationships, and robust marketing campaigns. With timely funds, businesses avoid financial instability, seize new opportunities, and build a loyal customer base, leading to long-term success.

8fig’s just-in-time funding

8fig’s just-in-time funding solutions cater to the unique challenges of eCommerce businesses by providing flexible funding that aligns with their specific cash flow needs. This approach ensures sellers have access to capital precisely when needed, reducing risks associated with delayed funding and maintaining financial stability. Our personalized funding supports business growth and competitiveness, acting as an AI CFO to adjust plans based on sales performance. This minimizes funding costs and maximizes available cash, offering the best value and fueling further growth.

If your eCommerce business struggles with delayed funding, consider 8fig’s just-in-time funding solutions. Designed to provide financial support when you need it, 8fig helps you avoid growth obstacles. Explore 8fig’s innovative funding options today and ensure your business’s stability and success, starting your journey toward seamless, reliable funding.


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