What Is Inventory Financing? A Guide for Ecommerce

Key takeaways

• 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 a typical timeline:

• Day 0: You decide to buy $100,000 of inventory.
• Day 1: You connect with your supplier to place the order. They need a 30% ($30,000) payment upfront to get started.
• Day 60: Your products are ready to ship. Before sending the goods, you need to pay the remaining 70% ($70,000) balance.
• Day 90: After four weeks at sea, your goods arrive. You can now start selling. You launch some marketing campaigns and spend $20,000.
• Day 100: Your inventory is starting to sell, but you're $120,000 in the red.
• Day 120: Your stock is sold out. You make 4x margins on your products, so you've made $400,000 in sales and a gross profit of $280,000 ($100,000 to purchase inventory and $20,000 in marketing costs).

Now, for businesses with proven sales and product-market fit, the return on inventory can be enormous — $280,000 profit in this example. But if you're buying $100,000 of inventory, you'll be down $100,000 in cash. It could be months before you start recouping that outlay. Like many brands, it's easy to get stuck in short-term cycles and be forced to focus on your next inventory order — not on your growth.

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 loans – Short-term loans secured against the inventory itself.
• Inventory line of credit – Revolving credit that can be reused as you repay, offering flexibility.
• Revenue-based financing – A provider gives capital in exchange for a percentage of future sales, with no equity or collateral required.

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.

‍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.

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.

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

Real-world example: Capnos, a mission-driven wellness company, used Mercury Working Capital to scale their ad spend and streamline operations. With access to fast funding, they were able to meet demand and grow quickly without giving up equity.

What is inventory financing? Inventory financing is a type of funding that allows businesses to purchase inventory without using their own working capital.

How does inventory financing work? It provides upfront capital to buy inventory, which is repaid over time — often as a percentage of sales.

What types of inventory financing are available? Common types include inventory loans, inventory lines of credit, and revenue-based financing.

What are the benefits of using inventory financing? It improves cash flow, supports growth, and avoids equity dilution.

Are there any disadvantages to inventory financing? Yes — costs, repayment risks, and added financial complexity.

Which businesses are best suited for inventory financing? Ecommerce companies with steady sales, high margins, and recurring inventory needs.

How can a business apply for inventory financing? Most providers request access to business data and issue offers based on performance.

What are the eligibility requirements for obtaining inventory financing? At least 6 months of sales, $20K+ in monthly revenue, and consistent bank balances.

What costs are associated with inventory financing loans? Fees typically range from 2–8% of the amount borrowed.

How does inventory financing compare to other financing options? It’s faster and more flexible than traditional loans, and it’s not dilutive like equity.