Inventory factoring for ecommerce: what it means and what to use instead
"Inventory factoring" gets used for several different kinds of funding. True factoring is selling invoices, which most online sellers don't have. Here is what the term usually means for ecommerce, how each option works, and how to pick one.
What factoring actually is
Factoring is the sale of unpaid invoices. A business that sells on payment terms, such as net 30 or net 60 to a retailer or distributor, sells those invoices to a factoring company. The factor pays most of the invoice value now, collects from the customer later, and keeps a fee.
That works for wholesale. It rarely fits direct-to-consumer and marketplace sellers, because their customers pay at checkout. There are no invoices to sell. The cash gap is earlier, between paying for inventory and selling it.
What people usually mean by inventory factoring
| Option | How it works | Sized by | Fits |
|---|---|---|---|
| Invoice factoring | You sell unpaid wholesale invoices to a factor | Invoice value | Brands that sell to retailers on terms |
| Inventory-backed financing | Funding secured by the inventory you hold | A share of the value of eligible inventory | Sellers with a lot of stock on hand |
| Purchase order financing | A funder pays your supplier for a confirmed customer order | The purchase order | Large, confirmed orders from a business customer |
| Sales-based working capital | Funding you use for any purchase, repaid from sales | Your sales history | Sellers who need cash before the inventory sells |
How to choose
Match the funding to where the cash gap sits. If you sell wholesale on terms, invoice factoring turns those invoices into cash. If you hold a lot of stock, inventory-backed financing can unlock its value. If a business customer has placed a large confirmed order, purchase order financing can pay the supplier. If you need cash to place the order in the first place, funding sized to your sales can cover the deposit before production starts.
Onramp Funds provides working capital to ecommerce sellers, and many use it for inventory. Offers are sized to your combined sales across your stores, the fee is flat and as low as 9%, and you can repay as a share of daily sales, on a fixed schedule over 1 to 12 months, or through a Rolling Cash Line. Subject to credit eligibility; rates and terms may vary.
See inventory financing for ecommerce sellers for a worked example of funding a production run from deposit to sell-through.
Questions to ask any inventory funder
Frequently asked questions
What is inventory factoring?
The term is used loosely. Factoring strictly means selling unpaid invoices to a factoring company. For ecommerce sellers, "inventory factoring" usually means inventory-backed financing, purchase order financing, or working capital used to buy inventory.
Can ecommerce sellers use factoring?
Only if they sell on invoice terms, for example to retailers or distributors. Direct-to-consumer and marketplace sales are paid at checkout, so there are no invoices to factor.
What is the difference between inventory financing and factoring?
Inventory financing pays for inventory before it sells and is repaid from sales or on a schedule. Factoring is the sale of invoices you have already issued, paid off when your customer pays.
How does Onramp Funds help with inventory?
Onramp Funds provides working capital sized to your combined sales, which sellers use to pay for inventory. Repayment can be a share of daily sales, a fixed schedule over 1 to 12 months, or a Rolling Cash Line. Subject to credit eligibility; rates and terms may vary.
Onramp Funds
Funding built around your sales
Connect your store and see what you qualify for. Repay as a percentage of sales, with no personal credit check.
Funding in as little as 24 hours.
