Stock finance for ecom brands: how to fund inventory without choking your cash

If you are an ecommerce business, placing stock orders is almost always your biggest cash commitment. You pay your manufacturer weeks or months before your customers pay you, and the faster you grow, the bigger that gap gets. That's why so many growing ecom brands end up looking for finance for stock at some point, often as peak sales season approaches.

Stock finance can be a genuinely useful tool. It can also quietly eat a large chunk of your margin if you pick the wrong product or don't understand what it really costs. This guide walks through the main options available to UK ecom brands, how to compare the true cost, and what to sort out before you sign anything.

What is stock finance?

Stock finance (also called stock funding or inventory finance) is any borrowing used to pay for stock before you've sold it. It isn't one product but a family of them: some are repaid as a percentage of your daily sales (like Shopify loans), some are tied to specific supplier orders, and some are traditional loans or credit facilities (like Wayflyer).

What they have in common is the problem they solve: the timing gap between paying for stock and getting paid for it.

Why stock squeezes your cash

For a brand importing goods manufactured overseas, a typical cash cycle looks something like this:

• A deposit of 30% to 50% to the factory when you place the order
• The balance paid on or before shipment
• 6 to 8 weeks of sea freight, plus customs and delivery to your warehouse
• Several more weeks (or months) to sell through the stock

Put together, you can easily be three to six months out of pocket on every order. On a £200,000 order, that's £200,000 sitting in containers and warehouses rather than in your bank account. If you grow 50% year on year, your next order is more like £300,000, sometimes before you've recovered the cash from the last one.

This is why profitable brands still run out of cash. Profit and cash aren't the same thing, and stock is usually where the gap between them lives.

Before you borrow: shrink the gap first

The cheapest stock finance is the cash you don't need to borrow. Before taking on any facility, it's worth asking three questions:

• Can you renegotiate supplier terms? Moving from paying both the deposit and the balance before shipment, to a deposit before shipment but balance on arrival in the UK can free up weeks of cash on every order, at no cost.
• Are you ordering the right quantities? Overstocking slow moving SKUs ties up cash that could be funding your bestsellers.
• Could freight be faster? Rail from China can cut weeks off transit compared with sea, which shortens the whole cash cycle. I recommend clients try to avoid air freight if possible as normally it works out as far too expensive.

We cover these in more detail in 7 ways to free up cash in your ecom business.

The main stock finance options for UK ecom brands

1. Revenue-based finance and merchant cash advances

This is where most Shopify and Amazon brands start, because it's fast and the offers often appear in your dashboard without you asking. Providers include Shopify Capital (issued in the UK by YouLend) and YouLend (Amazon), among others.

You receive a lump sum and repay a fixed total (the advance plus a flat fee) through a percentage of your daily sales. There's no interest rate as such, just the fee.

• Pros: quick to arrange, no fixed monthly repayment, and usually no personal guarantee on standard deals.
• Cons: the flat fee hides a high effective annual cost (more on this below), repayments come out of sales even in your tightest months, and repaying early typically doesn't reduce the fee. If you take out a loan just before a spike in sales, you end up repaying the loan too quickly.

2. Purchase order and trade finance

Here the lender pays your supplier directly against a specific order, and you repay once the stock has landed and sold, typically within 90 to 120 days. Purchase order finance is usually tied to a confirmed order from a creditworthy customer, so it suits brands with large retail or B2B orders more than pure D2C.

• Pros: the funding matches the stock cycle, and the facility can grow with your order sizes.
• Cons: purchase order finance can cost around 2 to 4% per month, many providers have minimum order sizes, and there's more admin on each drawdown. It's also only an option for certain businesses who have repeat, reliable B2B customers.

3. Revolving credit and stock facilities

A revolving credit facility gives you a limit you can draw, repay and draw again. Some lenders offer facilities secured against your stock, often alongside your receivables (usually called asset-based lending).

• Pros: you only pay interest on what you've drawn, and it's flexible across multiple orders through the year.
• Cons: harder to get for younger brands, lenders will want reliable stock reporting, and personal guarantees are common at the smaller end.

4. Bank loans

A term loan from a high street or challenger bank is often the cheapest option on paper. The government-backed Growth Guarantee Scheme, available through accredited lenders, can make banks more willing to lend to smaller businesses.

• Pros: lower interest rates and predictable repayments.
• Cons: slower to arrange, needs a trading history and solid accounts, and fixed repayments don't flex with your seasonality. If your business has less than 3 years of trading history, high street banks normally won't talk to you yet.

How to compare stock finance on true cost

This is the part most founders skip, and it's where the expensive mistakes happen.

A flat fee of 8% sounds cheaper than a bank loan at 12% interest, but it almost certainly isn't. This is where having a fractional CFO service really comes in handy. Interest is charged per year on what you still owe, whereas a flat fee is charged once, however quickly you repay.

As an example, take a £100,000 advance with an £8,000 fee, repaid from sales over six months. Because you start paying down the balance from day one, you only have the full £100,000 for a short time. Worked out as an annual rate, that £8,000 fee is equivalent to roughly 36% interest. If sales are strong and you repay in four months, it rises to around 60%, because you've paid the same fee for a shorter loan.

Three questions to ask of any offer:

1. 1.What's the total cost in pounds, over a realistic repayment period?
2. 2.What does that work out as an annual rate, so I can compare like for like?
3. 3.What happens to my cash flow when repayments are taken during my slowest months?

Watch out for the loan cycle

The biggest risk with revenue-based finance isn't any single advance, it's the cycle. Repayments come out of every sale, which leaves less cash for the next stock order, which leads to another advance before the first is cleared. We've seen brands paying effective rates of over 20% a year on a rolling basis without ever stepping back to look at the full cost.

If you're on your third or fourth advance, it's worth asking whether a cheaper, longer-term facility would break the cycle. Moving even part of your stock funding onto a bank loan or revolving credit can make a meaningful difference to your margin.

Watch for personal guarantees too. Many facilities ask for one, especially from smaller brands, and it's always worth asking whether it can be removed, capped or released once the business hits agreed milestones.

Start with a forecast, not a loan offer

The right amount of stock finance isn't the amount you're offered. It's the amount your cash flow forecast says you need, at the point you need it. A 13-week cash flow forecast that includes your stock purchases, supplier payment dates, VAT and existing loan repayments will show you:

• when cash gets tight, and by how much
• whether better supplier terms could close the gap on their own
• how each finance option affects your cash once repayments start

Lenders want to see this too. A brand that can show a clear forecast will usually get better terms than one asking for as much as possible. If you'd like help building one, that's a core part of our Cash Flow Forecasting service.

Where to start

Pick the finance to fit your stock cycle, not the other way round. Fix your supplier terms first, compare every option on annual cost, and keep the cheapest money for the stock you hold longest.

At RT Finance this is a conversation we have with most of the ecom brands we work with: comparing stock finance options, building the forecast that sits behind them, and planning the funding for peak season. If you'd like a second pair of eyes on your options, Get in touch and let's find 30 minutes to go through your numbers.

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