What is inventory financing? A guide for ecommerce

• Inventory financing can help ecommerce businesses maintain a healthier cash flow, freeing up capital for longer-term investments.
• Revenue-based financing is a popular form of inventory-financing that is short-term and non-dilutive.
• With revenue-based financing, you pay back a percentage of your daily sales — not a fixed lump sum every month.

Every ecommerce business needs inventory to sell, but paying for inventory can cause cash flow issues. Most suppliers and manufacturers require payment upfront — at Wayflyer, we’ve commonly seen 30% cash upfront on order and 70% on shipment. And inventory can take anywhere between three and six months to arrive after your first down payment.

Here's how a $100,000 inventory order can impact your cash conversion cycle, based on whether you use financing or not:

Once your inventory is sold out, the financing scenario shows more cash on hand because you haven't yet paid back the full financing balance — remittances continue at 12% of daily sales until the $106,000 total ($100k principal + $6k fee) is repaid. 

Without financing, your cash position sat at $100,000+ underwater from Day 60 to Day 100 because your capital was locked up in prepaid inventory instead of funding marketing, payroll, or your next inventory order. With financing, you were never out more than $20,000 from your own bank account. Using inventory financing allows you to smooth out your cash flow so you can reinvest, restock, and grow without waiting for inventory to sell through.

In this article, we explore how to solve these inventory problems with revenue-based financing; from how inventory financing works to knowing when to take it.

Inventory financing is a type of business funding used to purchase inventory (Investopedia). It frees up working capital so you can reinvest in marketing, hiring, or product development instead of tying up cash in stock.

Businesses can use various financing options to fund inventory, including:

• Venture capital
• Term loans
• Credit cards

However, specialized inventory financing products are designed specifically for ecommerce.

Inventory loan

An inventory loan is a short-term loan secured by the inventory itself. You receive a lump-sum payment upfront to purchase stock, then repay it on a fixed schedule (typically monthly), regardless of how quickly the inventory sells through. Because inventory serves as collateral, lenders may also require a personal guarantee, especially for early-stage businesses with limited credit history.

This structure works well when you’re confident you’ll sell through your inventory quickly and want predictable repayment terms. But if sales slow down, you still owe the same payment each month, which can strain cash flow during off-peak or seasonal periods.

Inventory line of credit

An inventory line of credit is a revolving credit facility you can draw on as needed, repay, and draw on again — similar in structure to a business credit card, but typically with higher limits and lower rates. Once approved, you can pull capital on demand to cover new inventory orders without reapplying each time.

The flexibility makes it a strong fit for businesses that restock frequently or operate with variable order sizes. The risk is that revolving credit can compound quickly if you draw faster than you sell through, so it requires disciplined cash flow tracking to avoid accumulating debt faster than you generate revenue.

Revenue-based financing

Revenue-based financing provides capital in exchange for a percentage of future sales, with no equity stake or hard collateral required. Instead of fixed monthly payments, you repay a set percentage of your daily or weekly revenue until the financed amount plus fees is repaid. On strong sales days, you repay more; on slow days, you repay less.

This structure is designed to match the variability of ecommerce sales cycles, making it especially useful for seasonal businesses or brands with inconsistent monthly revenue. Funds typically arrive within hours to days, and the application process leans on your ecommerce and marketing data rather than traditional credit underwriting. The primary trade-off is that fees can be higher than with a traditional loan, and daily remittances withdraw cash from your account continuously rather than on a set schedule.

Among these, revenue-based financing has gained popularity. Partners like Wayflyer structure funding to match ecommerce sales cycles. You repay more when sales are strong, and less during slow periods — reducing risk.

Benefits:

• Preserves cash flow: By financing inventory purchases, businesses can avoid tying up large sums of cash in stock, allowing them to invest in growth areas like marketing, hiring, or R&D.
• Supports demand spikes: Seasonal or promotional periods often require large inventory orders. Financing enables businesses to prepare without straining capital.
• Non-dilutive growth capital: Unlike equity financing, inventory financing — particularly revenue-based options — allows businesses to access capital without giving up ownership.
• Repayment flexibility: Revenue-based financing adjusts repayments based on sales, helping you avoid fixed monthly payments when sales are slower.

Risks:

• Cost of capital: Financing isn't free — fees typically range from 2–8%, and if margins are thin, this cost can cut into profitability.
• Asset risk: With inventory-secured loans, defaulting may result in seizure of unsold inventory, directly impacting your ability to generate revenue.
• Limited accessibility: Businesses with inconsistent revenue, short operating history, or low creditworthiness may find it harder to qualify.
• Operational complexity: Introducing any form of financing adds new responsibilities — from managing repayments to understanding terms — which may stretch early-stage teams.

A 6% fee on $100,000 seems simple — $6,000 to borrow $100,000 — but that fee isn't an annual rate. If you repay the financing over four months (roughly the inventory cycle in our earlier example), the APR-equivalent is closer to 18%, because you're paying 6% for one-third of a year. Repaying in three months pushes the APR-equivalent closer to 24%. The shorter the payback window, the higher the effective annual rate — which is why fees look cheap on paper but warrant comparison against a traditional loan's stated APR.

Consider this example of using $100k in inventory financing: At a 6% fee ($6,000 on our $100k example), you'd owe $106,000 total. If you agreed to a 12% daily remittance rate, repayment would draw from your daily sales until the $106,000 balance clears — typically extending a bit beyond the initial inventory cycle. If your sales volume doubles — say, a Black Friday push — you'd repay faster, which increases your effective APR (you're paying the same $6,000 fee over a shorter borrowing window) and pulls more cash out of your account daily when you may want to reinvest it. If your sales slow, the remittance stretches out, reducing your effective APR but increasing how long the fee is "working against" you.

It’s important to remember that revenue-based repayments flex with your sales, which is a benefit during slow months but a double-edged sword during peaks. High-sales days pull more cash out exactly when you might want to reinvest in ads or restocking. Model your remittance schedule against your sales forecast before accepting the financing.

What to watch for:

• Minimum remittance floors: Some providers require a minimum daily or weekly payment regardless of sales, voiding the flex benefit during slow periods.
• Top-up fees: Drawing additional capital mid-cycle can trigger new origination fees rather than extending your existing balance at the original rate.

Holdbacks: A portion of each sale may be held in reserve by the provider as security, reducing cash available to you even beyond the stated remittance percentage.

‍Your startup has achieved scale and has proven product-market fit. You don't want to take out finance for inventory you're not 100% confident you'll be able to sell.

You’ve had six months of sales. We’ve found that after the six month mark, sales achieve a steady level of predictability for businesses. Along with this predictability, you should have built up a strong understanding of which channels drive sales. For example, if you know your return on ad spend (ROAS) across Facebook and Google is 4x (so you'll make $4 for every $1 you spend), you can be confident in selling the inventory you finance profitably through these platforms.

Once you understand where your sales come from, you can start to forecast what your future might look like and feel more confident about taking on funding from an outside partner. At Wayflyer, we look for brands that have at least six months of consistent sales and more than $20,000 in average monthly revenue before offering financing.

You want to manage peak periods for your business. For example, if you sell seasonal products and experience higher activity around the holidays or Black Friday, you can use inventory financing to make larger inventory orders to ensure you can meet demand and your customers aren't left months waiting for their products to arrive.

You need quick access to cash. Revenue-based financing typically hits your account fast. At Wayflyer, we can create offers in hours and funds can get to your account within days.

You want to keep raising other types of funding. Because revenue-based financing is a short-term and non-dilutive way to finance inventory, it doesn't impact your future ability to raise money from other sources, like venture capital or a bank line of credit.

You will need cash frequently. You can use revenue-based financing to finance inventory frequently — for example, whenever you need to order a new batch of stock. The amount of funding you take can also vary depending on your needs at the time. At Wayflyer, we offer financing from $10,000 up to $20 million.

All of that said, inventory financing isn't always the right fit for every company. To that end, you should avoid it if:

You need to cover staffing and other operational costs. Revenue-based financing is best suited for inventory and marketing spend.

You’re pre-launch and new-to-market. Without existing revenue streams, no lender will look at your company.

Your finances are inconsistent. If you have low bank balances or are overdrawing regularly, providers likely won’t lend to you. These are negative indicators that you won’t be able to pay back the money.

‍You’re not ready to add a new layer of complexity to your business. Outside funding requires a new level of financial management that might be too much work for your business.

While eligibility varies by provider, lenders typically look for:

• At least six months of sales history
• $20,000+ in average monthly revenue
• Consistent bank balances (no frequent overdrafts)
• Strong marketing ROAS (e.g. 3–4x on Facebook/Google)
• Reliable ecommerce platform data (Shopify, WooCommerce, etc.)

Providers may request read-only access to your:

• Ecommerce platform
• Marketing tools
• Analytics platforms
• Bank account (or bank statements)

Keep your activity data handy

Revenue-based financing providers create funding offers by analyzing your ecommerce business’ historical performance data and forecasting future sales. When analyzing data, providers look for consistent sales and strong marketing performance. The more revenue you generate and the better your marketing performance, the more funding you’ll have available to you.

Typically, a revenue-based finance provider will usually ask you to share read-only access to the platforms you use to run your business. At Wayflyer, we look at four types of platforms:

• Your ecommerce platform (for example, Shopify, WooCommerce, or Magento)
• Your marketing platforms (for example, Facebook or Google Ads)
• Your analytics platforms (for example, Google Analytics)
• Your bank account or account with a banking services provider (for example, Mercury*)

In some countries, bank data isn't as easy to share directly with a provider. If this is the case, you'll be asked to share copies of your bank statements.

Calculate the costs

Revenue-based finance providers will charge a percentage fee on the funds you receive — usually between 2-8%. If you were to take $100,000 in funding to purchase inventory and the fee was 4%, you'd pay back $104,000. In this situation, inventory financing will have cost you $4,000 — if you’ve planned it right, that amount could be a drop in the ocean compared to the profits you would make once the inventory is sold.

Figure out remittances

With traditional funding options like loans, you’ll have to repay your lender every month regardless of whether you’ve received your inventory or made any profit. With revenue-based financing, you're only transferring funds to the provider when your business generates revenue.

Let's go back to our initial example. You've received $100,000 in financing from a revenue-based provider, and you need to pay back $104,000. If you agree to pay it back as 12% of your daily sales, your remittance could look like this:

• Day one: $18,000 in sales, so you pay back $2,160
• Day two: $12,000 in sales, so you pay back $1,440
• Day three: $24,000 in sales, so you pay back $2,880

On days where you generate more revenue, you'll transfer more to the provider. And on lower revenue days, you'll transfer a smaller amount.

Typically, funds will be automatically collected from your bank account to your provider daily by an Automated Clearing House (ACH) Pull or a direct debit, depending on where you live.

When deciding how to fund your business growth, it's worth comparing inventory financing with more traditional options like loans or equity raises. Each has its tradeoffs depending on your stage, business model, and goals.

Inventory Financing

• Short-term solution: Ideal for meeting specific needs like inventory purchases, especially around peak demand cycles.
• Product-focused: Most suitable for businesses that consistently need to restock physical goods.
• Revenue-tied repayment: With revenue-based options, repayments flex with your sales volume, reducing strain during slower periods.
• Non-dilutive: You maintain full ownership of your business while leveraging future revenue.

Traditional Loans

• Predictable repayment: Fixed terms make budgeting easier but also introduce pressure during slow months.
• Collateral requirements: You may need to put up business assets or personal guarantees, which can limit access.
• Approval time: Applications can take weeks, and underwriting may be less familiar with ecommerce needs.
• When it beats inventory financing: You have strong, steady revenue and want a lower-cost option with a fixed repayment schedule rather than sales-based remittances.

Equity Financing

• No repayment obligation: Useful for longer-term bets or capital-intensive growth.
• Loss of ownership/control: Investors typically expect board seats and decision-making influence.
• Time- and resource-intensive: Fundraising requires preparing materials, pitching, and due diligence, often pulling focus from day-to-day operations.
• Best suited for high-growth startups: Particularly those with outsized market potential or tech-enabled scalability.
• When it beats inventory financing: You're funding long-horizon bets (R&D, new market entry, category expansion) rather than a specific inventory cycle, and you're willing to trade equity for capital that never needs to be repaid.

Purchase Order (PO) Financing

• Supplier-paid structure: The lender pays your supplier directly against a confirmed customer purchase order, so you never touch the cash.
• Built for large confirmed orders: Especially useful for B2B or wholesale deals that exceed your working capital but come with committed buyers.
• Customer credit carries the deal: Approval leans heavily on your customer's creditworthiness rather than your own financials, opening doors that traditional lending might not.
• Single-transaction scope: Each PO is financed individually, so it's less suited to ongoing restocking needs.
• When it beats inventory financing: You have a large confirmed order on the table, but not the cash to fulfill it, and the customer's creditworthiness carries the deal.

Vendor Terms (Net 30/60/90)

• Effectively free capital: Paying within terms typically costs nothing, making this the lowest-cost financing option available to most ecommerce brands.
• Relationship-dependent: Access depends on trust built with your supplier over time, and terms often improve as the relationship matures.
• No external underwriting: You bypass lenders entirely, avoiding applications, credit checks, and data sharing.
• Relationship risk: Missed payments can damage the supplier partnership and trigger stricter terms or upfront requirements going forward.
• When it beats inventory financing: Your supplier relationship is strong enough to negotiate extended terms, and your sell-through cycle fits inside the payment window.

Platform Capital (Shopify Capital, Amazon Lending, PayPal Working Capital)

• Near-instant offers: Platforms generate their offers from the transaction data they already have, often with no application required.
• Automated repayment: A percentage of platform sales is deducted before funds reach your account, removing the need to manage transfers manually.
• Depends on a single platform: Funding amounts are tied to sales on that specific platform, so diversified sellers may see smaller offers.
• Limited negotiation: Rates and terms are typically fixed by the platform with little room to shop around.
• When it beats inventory financing: You sell primarily on one platform, want speed over flexibility, and the platform's rates are competitive with outside options.

Receivables Factoring

• Unlocks money already owed to you: Rather than borrowing against future sales, you're accelerating cash from invoices your customers have already committed to paying.
• Factor collects directly: The factoring company takes over collection, which can be efficient, but also puts a third party between you and your customers.
• Discount-based pricing: Fees typically run 1–5% of the invoice value per month outstanding, scaling with how long it takes customers to pay.
• B2B and wholesale focused: Rarely a fit for direct-to-consumer ecommerce since DTC sales are usually paid at checkout.
• When it beats inventory financing: Your cash flow bottleneck is receivables rather than inventory spend, and you need capital unlocked from money customers already owe you.

Mercury Working Capital is a flexible financing option designed to help startups cover growth expenses — including inventory. Unlike traditional loans, it has no fixed monthly payments and requires no collateral.

How it works:

• Connect your business accounts (banking, ecommerce, and marketing)
• Get pre-qualified in minutes
• Receive funding offers tailored to your growth

Consider this use case: A DTC ecommerce brand may use Mercury Working Capital to finance a large inventory purchase to prepare for its busiest season. After applying, the company secures its capital in as little as 48 hours and places the order, avoiding projected stockouts on its top 3 SKUs, growing revenue by 35% year-over-year, and repaying the loan in just 4 months. The most important part? It’s non-dilutive, so founders keep their equity. 

Inventory financing works best when you’re already running a healthy business, with stable sales forecasts, a fast cash conversion cycle, and little seasonality. 

But if you’re using inventory financing to mask challenges with your business, watch for these common mistakes: