COVID-19 lockdowns and the resulting global digitalization precipitated an explosion in the e-commerce industry. Businesses quickly realized that e-commerce was here to stay and had to pivot accordingly or risk collapse.
Like any small business, web-based retailers need to raise working capital for business operations such as meeting payment deadlines, purchasing stock in advance of holiday sales events, and improving their online sales platforms. Invoice Discounting Institutions provide advances to these sellers through invoice factoring. The merchants then repay the factor in stages according to the sales revenue they generate.
This financing model is particularly common among payment processors offering “capital advance” assets to vendors. Since they facilitate inbound transactions for vendors, they have visibility over the vendor’s current and historical sales performance, allowing them to predict future sales. With this data, they can evaluate risk and determine how much working capital they will offer the vendor. And because they control the vendor’s turnover, repayment of the advance can be subtracted automatically before paying the vendor’s account.
