Ecommerce Financing: How Real-Time Data Impacts DTC Brand Funding

Key Takeaways for Ecommerce Brands:

1. Explore Alibaba's new ecommerce financing solutions and their impact on DTC brands' cash flow management
2. Understand why real-time financial data is crucial for securing the best interest rates in B2B marketplace lending
3. Discover alternative financing options for ecommerce, including revenue-based financing (RBF) and merchant cash advances (MCAs)
4. Learn how data-driven lending decisions are revolutionizing ecommerce business financing and growth opportunities

The title of the keynote speech at Alibaba.com’s second annual CoCreate conference, which took place in Las Vegas in early September, was “Mission Simplify 2024.” But while the biggest announcement at the event – the launch of the platform’s AI sourcing agent – certainly fits the bill, its newly unveiled financing options pose potential complications, at least for ecommerce brands that lack real-time financial data.

Operating since 1999, Alibaba.com is one of the largest online B2B marketplaces in the world, with over 40 million active buyers globally and 400,000 daily product inquiries. It currently serves approximately 8 million ecommerce businesses in the US alone. In other words, it's where many DTC brands purchase the inventory for the products they later sell on platforms like Amazon and Walmart Marketplace.

Just like Amazon and Walmart Marketplace, Alibaba.com offers a range of sourcing, logistics, and financing solutions to attract ecommerce brands. At CoCreate, Alibaba announced the addition of two financing solutions meant to improve cash flow for ecommerce brands: a buy now, pay later (BNPL) for businesses program for businesses using Afterpay, PayPal, or Klarna; and a co-branded U.S. business credit card financing, in partnership with Mastercard, designed specifically for sourcing customers.

The Credit Conundrum

“Access to capital is the number one stumbling block globally – it’s essential for businesses to be able to grow, but it can be incredibly difficult to get,” said Jane Prokop, EVP for SMEs at Mastercard, during CoCreate. “Our collaboration with Alibaba.com is a perfect example of how partnerships can create value for the entire small business community.”

Of course, businesses applying for Alibaba’s new business credit card financing will be subject to credit approval. Designed to assess the borrower's ability to fully repay (balance and interest) the credit, this process involves analyzing the business's financial records, including things like:

• Balance sheet
• Cash flow statement
• Inventory turnover rates
• Outstanding debt

And more.

The same meticulous process applies to other financing options as well, and this is where real-time financial data – or the lack of it – becomes crucial. Without it, DTC brands’ financial management may suffer, leading to missed opportunities to qualify for the best interest rates or risking application rejections, ultimately hindering their ability to leverage growth opportunities or navigate unexpected challenges.

Beyond Traditional Lending

To avoid this, some ecommerce brands turn to alternative financing options for ecommerce such as merchant cash advances (MCA) or revenue-based financing (RBF), which are among the best ecommerce financing options for small businesses. MCAs provide businesses with a lump sum upfront, which is repaid through a percentage of their card transaction sales – plus fees. RBF, on the other hand, offers capital in exchange for a percentage of monthly revenues, including an agreed-upon multiple.

While revenue-based financing (RBF) and MCAs help brands bypass the rigorous application and approval processes of traditional financing, they still require pristine financial records. Many lenders even connect to businesses' back-end systems to gauge sales patterns and projected revenue, resulting in a more detailed and nuanced analysis.

The Data-Driven Lending Revolution

“One thing has become increasingly clear: the role of data in finance is not just growing, it's completely revolutionizing how we make lending decisions,” said Alan Lin, COO and co-founder of Outfund, which provides revenue-based financing (RBF) for ecommerce businesses. This showcases how DTC brands can use real-time financial data for better financing, as businesses that provide accurate, up-to-date data have access to more competitive lending opportunities.

“We're now able to look beyond mere numbers,” adds Lin, “considering factors like seasonality and recent performance trends. It's about creating a full picture of a business’s health and potential.”

Real-time financial data, explained Lin, is a precondition for creating this picture – especially in the ecommerce space: “Looking at, and cross-referencing, a range of different data points allows us to delve deep into the cyclic nature of ecommerce sales and infer correlations with other inputs such as marketing spend or a specific campaign or event, identifying peak periods and contextualizing performance.”

Another Competitive Edge of Financial Data

Today, only DTC brands financial management that can provide the data needed for this contextualization have access to the capital they need. “For example, we have financed many ecommerce companies that typically display low revenue in certain months,” said Lin. “However, a detailed analysis of their historical stock and marketing activities often reveals significant sales surges during expected key periods, such as Black Friday. This holistic approach allows us to recognize distinct patterns and tailor our financing to each business.”

In the competitive world of DTC ecommerce, financing can be the difference between making it or breaking it. Brands that don't prioritize real-time financial data may find themselves at a significant disadvantage, potentially missing out on vital funding – whether it's from Alibaba or other lenders. How’s that for simplifying the mission?