How Do You Decide If Ecommerce Financing Is Right For Your Small Business?

by allisonjanney21
ecommerce financing

From last year, due to pandemic COVID-19, eCommerce financing has been in trend as various businesses are giving their customers more buying power. Basically, it is the type of consumer credit that allows individuals to buy the product from any retailer and pay the total amount over time.

A number of big brands like Amazon, Flipkart, etc., do this now and then, but small businesses are lagging. However, the average order size of small companies delivering eCommerce financing can increase as much as 120 percent.

Moreover, if you think that eCommerce financing is always a win-win situation, it means it’s all about reward and no risk. Then you’re mistaken as a business has to pay any of the financing programs, lends funds, and they have to take the risk of allowing customers to pay the total amount over the period of time.

Now the question is how to decide whether your business can add this solution to your business budget? To get this answer let’s discuss some of the tips which will help you to decide: –

  • First, assess the current market for the business you are doing

Before you offer eCommerce financing to your esteemed consumers, run the numbers. That means having a look at the sale chart over the past few months and also seeing which product or service is in high demand.

Apart from that, also go through the average sales price. Are your customers interested in the credit option? After you get all the answers to these questions, conduct surveys and ask your loyal customers whether they want this option or not.

  • Determine how you will manage customer finance accounts

As a small business, if you hire any of the eCommerce financing companies, it will be a costly affair. They will charge for everything starting from collecting customers’ applications, payments, and interest every month. 

However, if you go for in-house financing with Blispay, LendPro, etc., then it will help you to connect your customers to small business websites and also allows consumers to apply for eCommerce financing.

With this option, also you have to hire more people who will track everything starting from payments, sales, and following up.

  • Select between various types of rates financing programs

In e-commerce financing, there are a number of different financing programs from which you can select the best according to your needs. However, some of them are available with no additional charge, and others charge a flat rate or discounted rate with every transaction. 

For example, PayPal and Blispay deliver free-of-cost eCommerce financing services, but you have to pay transactions to see as usual.

Moreover, if you talk about other financing companies, they charge around 1-5% on the purchase price. One more thing you have to consider is that this charge increases depending upon the item you are selling. 

Additionally, a flat rate covers an unlimited number of transactions. Overall, consumer credit depends on which type of product you are selling and how much you are selling for them. That means how much consumers are opting for eCommerce financing.

Benefits of eCommerce financing

As you all know, everything has its pros and cons, so before we will discuss risk factors, let’s dive into the benefits of eCommerce financing. It is true that financing allows individuals to buy their favorite product they need, and they will make the full payment over a period of time without making a hole in their pocket.

However, on the business side, it is helpful as they have the opportunity to increase their sales. According to the survey done by Klarna, around 75% of the shoppers go for online merchants who have the option of instant financing. However, 28% want to switch to that merchant that offers an eCommerce financing option. 

In another report stated by PayPal, more than half of the users do not purchase anything if they are not getting flexible payment options. Overall, it is an excellent option that helps small businesses increase their sales and make new customers.

Risk of eCommerce financing

It is indeed true that e-commerce financing helps in boosting sales, but you also have to accept that some of the customers may not pay what they have borrowed. Well, you can watch their creditworthiness on paper, but as a business, you never know how responsibly they will pay the remaining amount of the product. So, in that case, try to boost your savings if they will not pay and you come in a situation to apply for a loan.

Establish a backup plan for cash flow

When as a small business, you have started the option of eCommerce financing, at first, your cash flow may take a hit as you have to wait for the customers to get approved and make payments. This situation arises especially when you are not working with a company that will pay you the total price upfront.

So, to bridge the gap, build the business credit score as this card helps the business cover expenses for the company as they come up. The credit card is a flexible tool to cover all the monthly expenses when you are still waiting for the customer’s payments.

The bottom line

Ecommerce financing is one of the great options which allows every type of business to increase their sales and profit. But make sure before you choose this option you carefully weigh the risks involved with this potential reward. I hope this post will prove useful for various small business owners!

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