Financing Gets Flexible As eCommerce Sellers Brace For Seasonality Whiplash

With the holiday shopping season in full swing amid the global pandemic, online commerce is booming.

Digital Black Friday sales this year hit $9 billion, a 22 percent increase from 2019 figures, according to recent Adobe research. And the surge in eCommerce isn’t isolated to the B2C world, either: as social distancing requirements and shutdowns migrate corporate buyers online, wholesalers, distributors and other B2B vendors are likely to face a similar holiday boon this year to fulfill rising customer demand.

Despite a surge in sales, small businesses selling online can struggle to manage working capital, particularly as many rely on third-party marketplaces like Amazon that don’t facilitate instant access to revenues. According to Ricardo Pero, CEO of SellersFunding, that places many eCommerce sellers in a precarious financial situation.

“Small businesses face similar challenges that big retailers face when they transact online, because through marketplaces, they are able to reach out to millions of consumers,” he told PYMNTS in a recent interview. “But most people forget that we’re still talking about small businesses with a limited number of resources.”

Digital commerce is a capital-intensive business model, he said, and keeping pace with buyer demand puts a strain on finances. As Pero explained, traditional lenders aren’t always well-equipped to address these unique pain points of the online sales ecosystem.

Small Business, Big Challenges

While third-party portals like Amazon and Walmart have opened the doors for small businesses to reach more customers than ever before, investing in the tools and inventory necessary to match demand can be a struggle. What’s more, third-party platforms force sellers to wait to access their revenues, making cash management an even more arduous process.

In addition to issues like seasonality and high costs, small online sellers also face the issue of expanding on an international scale.

“These merchants are not only selling in their domestic market, but most of these platforms also allow them to sell international,” said Pero. “On top of capital constraints they need to deal with, they also need to deal with complicated tax schemes and exposure to different currencies.”

SellersFunding recently announced its own cross-border expansion in an effort to address these global pain points. The company now operates in the U.K., Europe, Canada, the U.S. and Australia, with Pero noting that it’s important to operate not just where a seller is based, but where the transaction occurs.

Looking ahead, Pero said SellersFunding is currently working on expanding into the B2B segment to help small online sellers targeting business buyers, too.

“I would say we see the B2B market with even higher potential than the B2C market,” he said.

An Alternative To Banks

It’s as yet unclear whether traditional financial institutions will pull back from small business lending amid economic uncertainty. But according to Pero, banks aren’t always equipped to fulfill online sellers’ working capital needs due to their legacy underwriting processes.

By integrating directly into eCommerce platforms and sales data, the underwriting process is able to take into account more information about a small business’s performance beyond traditional metrics upon which banks typically rely. What’s more, according to Pero, banks aren’t always able to forecast into the future, meaning they can fail to take seasonal fluctuations into account and adjust their financing offering dynamically as capital demands rise and fall.

“Traditional lenders look at the past,” he said. “They’re not looking at the future.”

Pero emphasized the importance of using industry- and business model-specific metrics, in addition to those more traditional factors, when underwriting financing — and using those metrics to offering dynamic financing, which will be an important tool this year as online shopping volumes spike and online sellers seek even more capital to cover the costs of fulfilling customer needs.

Seasonality plays a major challenge for online sellers, but according to Pero, the surge in demand among both consumer and business online shoppers is a likely long-lasting trend — meaning the capital requirements that small eCommerce sellers face are likely going to be long-lasting, too.

“The changes we are seeing in online shopping behavior are here to stay,” he said. “Even after we are done with this pandemic, consumers have gotten used to shopping online.