Amazon Inventory Financing: Challenges & Options

Amazon Inventory Financing: Challenges & Options

Why Do You Need Amazon Inventory Financing?

Many businesses worldwide are leveraging Amazon’s massive global retail platform to enhance their profits during Covid-19. Amazon inventory financing is an ideal option for new entrepreneurs in the ecommerce world. So far this year, 386,000 sellers have joined the Amazon marketplace.

What Is Amazon Inventory Financing?

Let's start from the beginning. What is inventory financing? It is a short-term loan or a revolving line of credit that a company acquires to purchase products to sell later on Amazon. These products serve as the collateral for the loan. Amazon inventory financing is helpful for businesses that owe their suppliers payments for stock that is to go into storage before it goes to customers via Amazon.

Ecommerce Financing Challenges

There are still many challenges to face with the pandemic disruptions in the global markets; however, 51% of Amazon sellers say their sales increased during the shutdown. If you are an ecommerce retailer, the pandemic has likely been a double-edged sword for you. Opportunities increased during the pandemic, but maintaining inventory levels may not have been easy.

The market is more competitive than ever, with less room for error. If inventory isn’t on hand, you are missing sales and risking negative reviews. Inventory is typically your largest expense, so you want to be smart about how you pay for it and how much of it you keep on hand.

Amazon inventory financing is a great chance to get started with innovative entrepreneurship ventures to build the right inventory level, enhance your profits, expand your vision and bring more growth to your business. But purchasing inventory requires cash flow. 

How do you ensure the cash you deploy to run your business and the incoming cash will be sustainable? It has to be well-managed through excellent bookkeeping, budgeting and forecasting, and using the right financial tools to pay for inventory, marketing, packaging and shipments, operating expenses and other business-critical line items.

Top Amazon Seller Challenges

According to the Junglescout seller report, sellers adapt to different challenges due to constant changes and harsh competition. What are those challenges?

Maintaining the right level of inventory

Having realistic forecasts about what will happen in the near and far term as far as orders and inventory is essential. You must have inventory on hand to fulfill orders and meet customer demands or you risk losing customers to the competition.

If you have too much inventory, it can quickly stale that requires you to dump that inventory. Finding the right balance and maintaining a diverse supply chain should be a priority as you plan.

Getting customer reviews

It is hard to get honest feedback from customers. Studies show 93% of shoppers read reviews before making a purchase, and a customer is 270% more likely to buy a product with five reviews than a product with zero reviews.

Ask yourself the questions that every shopper should ask with products for sale on Amazon: Would I recommend it to my friends? Would my family or friends like this product as a gift? Does the product solve a customer problem?

If the answers are affirmative, expect the best reviews that can translate to sales. Otherwise, it will be more challenging to clear the inventory.

Getting support from Amazon

Despite the investments Amazon made in 2020 to improve its customer service and avoid complaints, difficulties occurred. Manufacturers cited instances where Amazon did not retrieve purchase orders, and there were significant time delays in receiving the inventory at the fulfillment centers.

Amazon decided to block its third-party suppliers from using FedEx to ship its products due to poor performance. There were several opportunities for improvement. Amazon has been doubling its investments by now offering excess fulfillment capacity to other retailers and businesses that need a credible alternative to the major carriers.

Amazon has also implemented delivery programs for third-party carriers and has even implemented Amazon's solutions in third-party warehouses. Customers around the world can call the contact center at any time, give product reviews, have access to chat rooms, and blogs are constantly available, too.

Finding products to sell

Many entrepreneurs think about starting an online business, and Amazon is one of the best strategies to carry it out. The platform is available to newcomers and established businesses, offering a profitable business model and access to a massive audience. 

But one of the biggest entrepreneurial challenges is deciding which products to bring to market or resell.

To find profitable products to resell, you need to do your research. Still, many entrepreneurs use retail arbitrage to start, which is an affordable way for new sellers to dive into selling on Amazon. The only real investment is the cost of purchasing discounted products. 

There are even Amazon pricing apps as secret weapons for smartphones, like Amazon Seller App and Scoutify, which help you spot profitable opportunities. These apps offer a wide range of information to help you determine the right price for your products, including the average selling price and purchaser demand, your delivery or fulfillment costs from Amazon (FBA), and your potential profit.

Of course, you can also manufacture and sell your own branded products, but that means partnering with design and production companies and spending months or even years bringing a viable product to market.

Monitoring and managing expenses, revenues, and other financial metrics

A highly competitive marketplace requires marketers to evolve and remain agile. That's why another major challenge for entrepreneurs is implementing technological tools and training themselves with the benefits they can offer to businesses.

It isn’t always easy to find tools that can easily monitor their seller profit on Amazon, track their expenses, and other business metrics to help maximize earnings.

Amazon Web Services (AWS) also offers a cloud platform. They have also been working hard to provide cloud computing products and services like servers, database storage, networking, content delivery, remote computing, email, mobile development, and security. 

AWS can be divided into three main products: EC2, Amazon's virtual machine service, Glacier, a low-cost cloud storage service, and S3, Amazon's storage system. 

Managing Cash flow

As we mentioned, cash flow management is essential to sustain a healthy business. Running out of cash to purchase inventory and other short-term assets is often the reason why so many businesses fail. 

Remember that beyond inventory, positioning and advertising are vital because there is so much competition in the market. In addition, healthy cash flow is vital to increase market share, optimize costs, and drive additional revenue.

Make sure you have the right financial product to maintain your cash flow. You likely will need to move beyond business credit cards and bank loans to the non-traditional cash advance products that tie repayment to actual sales. 

How Do I Finance My Amazon Inventory?

There are different ways to find Amazon inventory financing: money in the bank (personal savings), credit cards, traditional bank loans, Amazon loans, and alternative financing that provides cash-based on actual sales. 

Things are changing fast, including the way the money moves. Unfortunately, as we all know it, the traditional lending model is not built for ecommerce sellers and the unique challenges they face.

Related: Financing options for Amazon Sellers

How Do You Qualify for Amazon Lending?

So, you are probably on the way to build your online business with an ecommerce store on Amazon or on Shopify; but need the money to start. Getting traditional funding can get challenging and time-consuming, and the truth is, you likely can't wait that long.

Banks can offer large sums of money at varying interest rates, but the approval process can be exhausting, so small businesses often aren't approved. What it takes to complete the paperwork and go through the review process, may cause you to lose sales. All in, banks are typically an expensive route and not built for ecommerce sellers, especially for those needing short-term cash for inventory.

If you sell your product on the Amazon marketplace, you might qualify for an Amazon loan. Amazon Lending does not check credit, and these are the usual steps they follow:

  1. First you have to sign in to Seller Central with a personal or a professional account. 
  1. If your business is eligible to apply, you'll get a message from Amazon Lending.
  1. You choose the financing option that best fits your business and up to the amount you are eligible for. 
  1. Upon approval, your access to the funds is typically within five business days.

Keep in mind that by using a non-traditional financing method, you'll have a more straightforward approval process than going through a traditional bank. So, not qualifying for conventional financing methods or for Amazon inventory financing can guide you to new options.

There are non-traditional cash advance companies, for example, that support small- and medium-sized businesses and help them grow without adding in debt and risk. All you need to do is integrate your store and get prequalified in minutes. They take a small percentage (as low as 1%) of GMV and help you save around 50% in fees versus banks and cash advances, enabling you to invest into marketing, staffing, inventory or whatever else you need to scale your business.

With this option, cash flow management is much easier, affordable and less risky. As you sell products, the company automatically pays itself back by taking a small percentage of gross sales. Financing stays aligned with sales, eliminating the need to make minimum monthly payments that eat up so much of your cash.

Related: 3 eCommerce Financing Options to Grow Your Business

How Should I Invest Funds?

Be strategic once you get the funds you need. By optimizing these following factors, you can boost your company’s sales

  1. Invest in advertising to position your brand in the market and on social media, including paying influencers. This includes investing in Amazon pay-per-click (PPC) ads to help customers discover and purchase your products on Amazon. 
  1. Upgrade your product, restock your inventory, or expand your product line.
  2. A trend on Amazon, is that people, instead of starting from scratch with their ventures, have the capital or ask for the funding to purchase brands they can own instead of reselling. 
  3. Determine how to manage your operations. One option is FBM (Fulfillment by Merchant). You research shipping costs and keep the necessary supplies such as boxes, poly mailers, tape, bubble wrap, labels, printers, and scales. Ensure you understand shipping commissions and credits so you know how to set the pricing for your items.
  • You also have the option of using FBA (Fulfilled by Amazon), where you pay a fee to outsource shipping and customer service to Amazon. You ship your merchandise to Amazon warehouses and they take care of the storage, shipping, and customer service. 

FBA fulfillment option has its costs, but managed right, it can be far cheaper and less time-consuming than handling fulfillment and customer service yourself.

Optimize Your Way to Get Cash

Consider a modern approach that aligns with e-Commerce sellers’ business model for your Amazon inventory financing. Onramp is a company that focuses on your business interests. 

Ask for cash options with the security of knowing the money will be there when you need it. Our Team is ready to help you pave the way for your business, offering real one-on-one personal service.Traditional lending is not built for ecommerce; most sellers agree. Let's Talk.