About Supply Chain Financing
Supply chain financing, also known as supplier financing, involves the supplier, a third party funder, and a buyer. The retailer or buyer is able to pay for the supplier’s invoice via a third party. They usually cover 80% of the costs right away, and when the retailer fulfills the invoice to the third party, the third party then sends the remainder of the payment to the supplier. Everyone wins, as the supplier receives most of the payment quickly, and the buyer has time to pay off the invoice. The third party may or may not charge a fee for each transaction.
For those in need of some assistance managing inventory cash flow, then this financing type can help. It benefits all parties involved. The supplier receives most of their funds immediately, instead of waiting for the payment term to run out, which could take up to 30, 60, or 90 days. The buyer is able to acquire the goods they need without the pressure of paying the full invoice immediately, and the third party earns a payment in the form of a fee per transaction.
As with any form of funding, supply chain financing comes with a cost. The third party funder needs to be paid, and the fee may raise the price the buyer will eventually pay. In addition, supply chain financing can only be used for the acquisition of raw materials and products. Finally, not everyone qualifies for this type of funding. The requirements are often more strict than other forms of financing, so newer businesses and those without a high credit rating or strong financial history won’t be eligible.
Alternatives to Supply Chain Financing
Fortunately, there are plenty of alternatives to supply chain financing that are more accessible to eCommerce businesses looking for a cash flow boost. Each funder and financial institution is unique and has different eligibility requirements and guidelines. Therefore, it’s a good idea to do some research before selecting a funding partner. Setting a budget and determining your exact funding needs and goals can help you sift through the options to find the one that’s best for you. We’ve compiled a list of some of the most common types of financing that can be used to fund your supply chain.
Invoice factoring
Invoice factoring can be utilized by businesses that have outstanding invoices. They can sell their invoices to an invoice factoring company in exchange for the funds up front. The factoring company will purchase them at a discount, therefore making a profit on the transaction. Then, the factoring company will collect payment on the invoice directly from the customers.
This is a good solution for businesses that need fast funding and can’t wait for their customers to make their payments. However, remember that you are sacrificing a portion of your invoice, and it may be relatively costly. In addition, there may be extra fees involved, as every factoring company is unique. Pay close attention to your agreement because you may be responsible for the payment if the customer fails to do so. Therefore, make sure you have confidence in your customers before selling their invoices to an invoice factoring company.
Bank loan
Banks provide businesses with a lump sum of capital through bank loans. This type of financing can be used to cover any business-related expense, your supply chain costs included. If you secure a bank loan, you’ll have to repay it through regular, fixed payments. It’s a good option for those who can afford a large monthly payment and meet all the eligibility requirements.
This loan type is hard to obtain, due to these strict eligibility requirements. High credit scores and long trading histories are usually mandatory, and you may even have to put up collateral to secure your loan. Due to these strict conditions, bank loans typically have lower interest rates. This will relieve some of the pressure on your budget when meeting that monthly payment.
Revolving line of credit
A revolving line of credit is similar to a credit card. You can take out funds as you wish up to a specified lending limit. When you pay off the funds you borrow, you get access to more funds. It’s a beneficial loan to have for emergencies, last-minute orders, and managing day-to-day expenses. This isn’t a loan that can cover large purchases, though, due to the relatively low limits, so you’ll need to look elsewhere if you need a large amount of capital.
This type of financing has more lenient requirements than a bank loan, so it’s not too difficult for most businesses to obtain. You may need to undergo a credit check, though. Unlike some other funding types, the lender doesn’t dictate how you spend it, so you can use the funds for any business expense you wish, at any time. However, it tends to have higher interest rates and a low borrowing limit, so it’s not ideal for every business need. Lenders have been known to sneak in fees, so read your contract carefully.
Inventory financing
If you’re an online retailer who needs to stock up on inventory or are preparing for a new product line, then you’ll need to find a way to pay those supply chain costs. Inventory financing can help you meet demand and avoid stockouts. Your loan will be secured with the inventory you purchase, which serves as the collateral. Inventory financing has lenient eligibility requirements, so a wide variety of businesses are able to apply with a quick and easy application. Your funds will be delivered in days, not weeks or months.
While this type of funding can be immensely helpful to businesses looking to finance their supply chain, some lenders have a loan minimum that can be too high for some businesses to meet. Most of the time, you won’t receive the full amount of funding you need for your inventory either.The lender may perform regular inventory evaluations, so be sure to keep accurate records.
Revenue-based financing
When banks and lenders don’t work out, or if a fixed monthly payment is too much of a burden, you can turn to revenue-based financing to help you out. If you have strong, consistent revenue, then you can receive funding in exchange for a percentage of your future profits. The repayment terms are flexible, as it depends on your sales volume. When you have a month of good sales, your repayment will be higher, and when you have a slow month, your repayment will be lower. This takes a lot of pressure off your budget.
With revenue-based financing, funds become available quickly, so you won’t have to wait weeks or months for your much needed cash. In most cases, credit checks and extensive business evaluations aren’t necessary in order to be approved. You will have to prove that you bring in regular revenue, though. You’ll also retain 100% ownership of your business. That being said, revenue-based financing often has a higher cost of capital than traditional loans.
Merchant cash advance
If you need quick funds, then a merchant cash advance could help you in your time of need. The eligibility requirements are very lenient, and credit scores and business histories aren’t always considered during the approval process. Collateral isn’t needed, either, so you don’t have to risk your business assets. However, as with revenue-based financing, funding companies will likely check your sales revenue. This is because you will repay your merchant cash advance with a percentage of your credit and debit card sales.
A merchant cash advance gives you the freedom to spend your capital as you wish, so you’ll be able to put it towards financing your supply chain if you choose. You will notice a dip in your profits, however, as a portion goes to your funding partner. This type of financing is often more costly than other types of funding, so read your contract carefully and make sure you have the ability to stick to it. If you fail to make payments, they may have the right to remove money from your account, regardless of sales volume.
8fig Financing for Your Supply Chain
The supply chain is an inseparable part of running an eCommerce business. 8fig is a funding and growth partner that works exclusively with eCommerce sellers, so we understand the unique challenges that come with financing your supply chain. Therefore, we have developed a new method of supply chain financing designed to optimize your cash flow and allow you to grow your business.
Why use 8fig for supply chain financing
Consistent cash flow is the key to maintaining supply chain costs. Large lump sums aren’t always an affordable or efficient option for small businesses. 8fig offers continuous, flexible funding aligned to your supply chain. You’ll get consistent capital injections into your business aligned to your supply chain costs, so you won’t have to worry about going out of stock. Plus, you can adjust your funding to meet your needs, changing the details as you go during the process. You won’t fall behind with 8fig as a business partner.
How 8fig works
1. Apply
The application process is fast and easy. Answer some questions about your business and sales, and then provide basic information about your supply chain stages and expenses.
2. Connect your store and bank account
In order to provide you with an optimized Growth Plan, 8fig requires that you connect your store and bank account to the 8fig platform.
3. Get funded
With 8fig, you can get funded in just days. Since 8fig funding is continuous, you receive capital infusions into your business right when you need it.
4. Make adjustments
If something changes and you need to adjust your payments, remittance schedules, or even funding amount, you can always do so thanks to 8fig’s flexibility.
5. Grow your business
All that’s left to do is sell, sell, sell. With 8fig, businesses are able to scale 2.5x as fast.
What 8fig offers in addition to financing
8fig is more than a great funding partner. You can take advantage of our growth tools on our all-in-one eCommerce growth platform. 8fig’s tools and resources allow you to optimize your cash flow, track your sales, and more.
When it comes to your supply chain, 8fig provides you with invaluable tools to plan, map, and manage the flow of goods and capital across your supply chain. You’ll then be able to visualize exactly when you need a cash boost. Using this data, 8fig will provide you with the capital you need, when you need it. You’ll be able to stock up on inventory and meet your goals with confidence so you can grow at the pace you want.
Who is eligible for 8fig supply chain financing
The 8fig application process is quick and simple, and you’ll receive your funding in days, rather than weeks or months. With 8fig’s help, you can fund up to 90% of your supply chain costs, which will allow you to breathe easy during the next spike in sales. In order to apply, 8fig asks that you have at least 12 months of trading history, $100,000 or more in annual revenue, and an average of $8,000 in monthly sales over the last three months.
How to apply for 8fig financing
It’s easy to apply for 8fig financing, and it only takes a few minutes. Simply answer the questions and follow the prompts and you’ll get funded in no time!