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How Do You Speed Up Cash Flow When You’re Selling on Amazon?
Amazon has historically offered e-commerce loans to select vendors with large enough and consistent enough sales volumes. But according to Forbes Magazine in March 2024, “Amazon will no longer underwrite loans for sellers in its $140 billion Marketplace business.” Waiting for payments can stunt your company’s growth. Selling through online platforms such as Amazon can create additional challenges when securing financing. Many lenders won’t use those types of sales to qualify for funding, or they require high and consistent sales volumes. So what are your options?
Factoring
For vendors who sell products to Amazon, and who wait to receive payment from Amazon for 30-60 days or even longer, factoring receivables from Amazon can eliminate the wait and put capital back into your business immediately.
For vendors who sell products on the Amazon platform, your factoring company may choose not to finance the sales receivables. If this happens to you, consider factoring receivables from other online and brick-and-mortar retailers. Choose invoices for your largest and most financially stable clients to open the factoring relationship.
Assuming a factoring fee of 5%, and an advance rate of 93%, here’s how it would work:
Day 1 | Generate an invoice for goods sold on Amazon or receive an Amazon vendor statement (promise of payment) for $25,000 and factor it |
– 1-2 Days | Receive an advance of $23,250 (93% advance) Factoring company earns 5% factoring fee |
Day 30+ | Receive an additional $500 reserve amount after Amazon remits payment |
Cash Flow Loans
Sellers may also qualify for a cash flow loan. Often called a merchant cash advance, the cash flow loan sets up loan payments as a percentage of daily sales when payments are made by debit or credit. Cash flow loans can provide quick access to cash flow without fixed monthly payments. Understanding the overall impact on your cash flow is critical before choosing this type of financing. Make sure you have enough remaining cash flow to meet your obligations in addition to the loan payments.
Line of Credit
If the seller has assets that can be pledged as collateral, a lender may set up the loan using collateral that is not directly impacted by inventory sales. While this puts assets at risk when payments are not made on time, collateralizing a loan provides capital when other options are not available. Again, verify that your sales can support the loan payments before taking out the loan.