Commerce Trends

Is inventory financing the answer to your Black Friday woes?

Ahead of this year’s Black Friday season, e-commerce brands are using inventory financing to avoid supply chain issues and meet demand. Find out how!

Note from the editor: Today we're bringing you something a little different from our friends at Clearco! They've got some great ideas on how inventory management & financing can help ecommerce brands solve for maximum profits on Black Friday. After the article, we'll tag along and riff on what this could mean for your returns management process too.

Black Friday Cyber Monday (BFCM) is coming up, and for e-commerce brands across the globe, this means one thing: time to stock up on inventory.

Navigating the waters of inventory management during normal times is already a challenge—but stack BFCM on top and it can feel like an insurmountable hurdle. Too often, brands have to sacrifice other arms of the business—like ad spend or R&D—to keep their inventory afloat.

But managing inventory shouldn’t be pitted against everything else: it should work in tandem with the other parts of your business to create better and more successful purchasing experiences for your customers. 

And that’s where inventory financing comes in. Following a few unexpected years in which ecommerce experienced a meteoric rise, online brands have had to adapt how they look at inventory, particularly as it relates to Black Friday.

Like last year’s, BFCM 2021 will be like no other we’ve seen before, with increasingly complex challenges. What does this mean for e-tailers? In order to avoid working capital issues and meet demand, you may need to turn to inventory financing.

How's your Black Friday marketing plan looking? Level up with these five pro-tips.

What is inventory financing?

Invoice financing, also known as “accounts receivable financing”, “receivable financing”, or “invoice trading”, involves borrowing money against outstanding invoices from customers.

It is a form of asset-based financing that allows a company quick access to funding, oftentimes so that they can improve cash flow, pay suppliers, and further invest in operations.

In the case of Black Friday, this type of financing can free up the capital needed to invest in safety (overflow) stock, scaling your customer support team, or BFCM marketing, to name a few.

How does inventory financing work?

Invoice financing allows businesses to borrow money against what is due from their customers through a third-party lender that charges either a fee or a percentage of the amount borrowed.

It’s a short-term form of borrowing that helps a company improve its immediate capital needs, which can be used to pay business expenses (like increasing stock ahead of busy purchasing seasons).

Particularly in the early days of a business, circumventing the need to wait until customers have paid their balances in full can help boost growth by providing you with much-needed short-term liquidity.

Types of inventory financing

Generally speaking, invoice financing can be divided into three categories:

  • invoice factoring

  • invoice financing services 

  • receivables-based lines of credit 

Invoice factoring 

Invoice factoring is the simplest way to accomplish invoice financing: a business sells its outstanding invoices to a lender, who then pays upfront a portion of what the invoices are worth (usually somewhere between 70% and 85%). The lender or “factoring company” purchases the invoice at a discount, and is then responsible for collecting payment from customers.

Since the lender takes on the risk—say, for example, if the payments aren’t made on time—this type of lending tends to incur higher fees. This method of invoice financing is prevalent in the clothing and manufacturing industries, where long accounts receivable cycles are common. 

Invoice discounting 

Occasionally referred to as invoice financing services, this method is similar to invoice factoring, except instead of the lender collecting payments from customers, the company (you!) are responsible. This allows the loan to occur without the customers being aware of the arrangement.

The lender advances the invoice amount to the business and once the customers pay their invoices, you repay the lender—minus an agreed-upon fee or interest charge. In this scenario, if your customers default on their payments, you are responsible for the amount that was loaned.

Receivables-based lines of credit

This kind of invoice financing is very similar to a conventional line of credit. You draw funds as you invoice your customers, paying the line down as they pay their invoices. On average, this option allows you to borrow up to 85% of the value of your receivables, and you’ll be charged either a fee, interest, or both. 

You can learn more about whether inventory financing is right for your business here.

Black Friday ecommerce strategy: How to dominate BFCM in 2021

How to manage inventory this Black Friday

Now let’s say you’ve sorted out financing ahead of the BFCM season, and as a result, you’ve been able to acquire additional inventory to meet the upcoming surge in demand. Your next challenge is going to be how you manage said inventory.

After all, mismanaged inventory during normal times leads to frustrated customers and a loss in revenue. But when inventory isn’t managed properly during BFCM, it can be disastrous. Given that Black Friday shoppers will be flocking to stores—both online and in-person—earlier than usual in 2021, retailers need to prepare for this influx. 

To make sure your shelves (virtual or otherwise) remain stocked during the upcoming Black Friday season, we’ve put together a few tips on how to minimize losses while maintaining inventory at optimal levels.

Read More: 5 best post-purchase software solutions

7 tips to help manage inventory during BFCM and beyond

  1. Implement an inventory tracking system

  2. Reduce any inventory that’s no longer relevant to the market

  3. Create one source of truth by centralizing your data

  4. Establish a strong relationship with suppliers 

  5. Automate the restocking process, if possible

  6. Leverage inventory financing

  7. Have a clear plan to manage returns, including a return policy on a dedicated page and a strategy to incentivize exchanges

If this all sounds a little overwhelming, you’re not alone! Many brands opt to work with third-party logistics partners to oversee all or some parts of inventory management, including warehousing, fulfillment, and distribution. You can learn more about the ins and outs of inventory management here

How Clearco can help 

Clearco’s data-driven inventory financing offers e-commerce businesses the ability to stay on top of their operations during a busy time like BFCM, without sacrificing quality or the customer experience. For the first time ever, Clearco will be able to purchase your inventory—upfront, directly from suppliers—with payments required only when products have been sold (and not a minute sooner!)

Clearco’s full offering includes:

  • Easy inventory financing: Receive up to $10 million in stock financing when you connect us with your 3PL management software. Remember, you’ll only need to pay it back when the product has been sold with a 6% flat fee. 

  • Automatic invoicing: Clearco will handle all payments to your suppliers; all you need to do is upload your inventory invoices.  

  • Better rates with suppliers: Save up to 10% on inventory purchases when you pay upfront with Clearco.

Connect your accounts today to find out whether you qualify for equity-free, no-strings-attached funding.

How Loop can help 

Inventory matters a lot when you are selling directly to your customers. But it's not just regulars & first-time buyers you need inventory for. How about returns?

BFCM is the start of what we call returns season. It lasts until around mid-January and during this period brands can expect up to 31% more returns. So yea, the above ideas about inventory financing can really help a ton.

Another thing that can help: smooth as silk returns management. That's where Loop comes in. It's a whole lot easier to handle inventory when the returns process is handled automatically - that's for sure.

There's a lot more to it than that though. Check out our how it works page to see Loop in action. If you find yourself enticed, take the plunge and book a demo with our team. You're gonna like the way your returns process looks - we guarantee it. 🤓

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