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The importance
of cash flow in retail

Struggling to keep your shelves stocked and meet customer demand? Many small retailers face this challenge. Cash flow issues can arise when supplier payments are due before customer sales, creating a tight squeeze.

Limited working capital might also hold you back from growth opportunities like renovations, expanding locations or investing in marketing initiatives.

Challenges facing retail

Even if you are an experienced business owner, you can encounter challenges such as:

An inability to take on large orders owing to a lack of working capital.
Difficulty financing inventory and equipment needs
Cash trapped in unpaid invoices impacting operations
Loan restrictions to get capital from banks.

If any of these scenarios ring true, you’ve come to the right place. In this guide to retail finance, we explore funding solutions tailored specifically to help retailers like you overcome cash flow gaps and facilitate growth, even when working capital is limited.

What is retail finance?

Retail finance refers to alternative lending products and services. There are two main categories of retail finance: customer finance helps consumers pay, while merchant finance helps businesses manage their finances.

This type helps consumers finance their purchases at the POS checkout. Examples include ‘Buy Now, Pay Later’ (BNPL) options that allow customers to split their payments over time.

Lulapay is a Buy Now, Pay Later facility offered by Lula, enabling customers to break up their payments, and keep your cash flow stable.

This type provides retail businesses with the working capital they need to operate and grow. It includes tools like inventory financing, short-term loans, and lines of credit that address challenges specific to retailers, such as seasonal fluctuations and outstanding invoices.

Unlike other types of loans, like restrictive traditional bank loans, retail finance products are built with the unique challenges facing retailers in mind, such as rapid inventory turnover, seasonal demand fluctuations, long supplier payment terms before customer payment, and more.

They offer flexible funding that you can quickly and easily qualify for based on your business’s performance and incoming cash flows rather than personal credit or fixed asset collateral.

Whether you’re looking for customer finance or merchant finance, Lula has solutions in the form of Lulapay, Revolving Capital Facility and Capital Advance to help retailers manage cash flow by offering financing options to their customers.

How to finance retail development

Expanding operations through new store openings or renovations is an exciting way for retailers to drive business growth. However, retail development projects require significant upfront capital investments.

From construction and leasehold improvements to inventory and equipment costs, financing is critical to getting your retail development plans off the ground. The right finance solution for your business will depend on the scale and scope of your retail growth plans.

What are some types of retail finance solutions?

The two primary retail finance products are inventory financing and merchant cash advances. Let's explore each of them:

Inventory financing, or a working capital loan for inventory, provides retailers with cash upfront to purchase inventory based on incoming purchase orders or inventory already on hand. As customers deliver and pay off inventory, that cash flow is used to pay back the inventory loan plus any interest and fees.

With financing for inventory, retailers gain the working capital to take advantage of supplier payment terms and quantity discounts. This way, cash is no longer tied up in unpaid customer invoices, which conveniently frees up precious funds for other operating expenses.

Essentially, inventory financing unlocks the value in your inventory to meet demand and grow sales.

Merchant cash advances (MCAs) provide lump sum financing that is repaid via a percentage of your future debit/credit card sales or revenue. MCAs best suit the retail industry with strong and steady card payment volumes.

With an MCA, you get an upfront sum of cash, often within 24 hours, in exchange for a fixed percentage of future sales until the advance plus fees are repaid. Remittance is automatic via your payment processor. Repayment amounts fluctuate based on your sales, giving you some flexibility when cash flow is tighter.

Other retail finance solutions include:

Purchase order financing
Short-term working capital loans
Business lines of credit
Accounts receivable financing

How retail finance helps SME retailers grow

Working capital shortages are one of the biggest constraints holding many small retailers back from achieving their growth potential. Retail finance products eliminate this roadblock by injecting capital when needed most. Here are 8 key ways retail finance drives retailer growth:

Maintain ideal inventory levels: For most retailers, inventory is the biggest capital requirement. Running out of popular items means lost sales, while overstocking hinders cash flow. Inventory financing keeps your inventory optimised.
Take advantage of bulk discounts: With cash readily available from inventory loans, you can stock up on inventory from suppliers when volume discounts are offered. Those savings go straight to your bottom line.
Ease seasonal cash shortages: Seasonality is a major issue for many retailers, with peak sales periods followed by cash crunches. Retail finance bridges the cash flow gaps so you can ramp up for busy seasons.
Expand buying power: Retailers can qualify for far more inventory financing than they can with a traditional loan provider like banks. That expanded buying power lets you purchase more stock to grow sales.
Renovate or open new locations: Short-term working capital loans give you cash to invest in remodelling your store or opening new locations to expand your brand's reach.
Smooth out inconsistent cash flow: Bad debt, slow-paying customers and uneven demand disrupt your cash cycle. Retail finance stabilises cash flow so you can consistently pay staff, suppliers and other operating expenses.
Support new growth initiatives: From investing in e-commerce to launching a new product line, retail finance provides the growth capital needed to seize new opportunities.
Improve supplier terms: With cash on hand from financing, you'll have negotiating leverage to secure better payment terms from suppliers, preserving cash flow even more.

what is retail finance chart

How can retail finance help mitigate late deliveries?

Maintaining proper inventory levels is critical for retailers, as stockouts can lead to lost sales and a bad customer experience.

However, businesses often face the opposite challenge of late deliveries from suppliers delaying the arrival of new merchandise on store shelves. Fortunately, retail finance solutions can help eliminate this supply chain bottleneck.

Late deliveries frequently stem from suppliers requiring payment upfront before shipping orders. If you’re waiting on incoming cash flows from sales to have enough working capital, this can put you in a difficult position.

Retail-specific financing solutions like inventory finance, purchase order funding and trade credit provide the working capital to promptly pay suppliers once orders are issued. With these funding options, retailers can secure inventory replenishment on time without being hampered by cash constraints or cash flow timing issues.

Tech transforming retail consumer financing

Technology is revolutionising how consumers interact with retail finance. Think mobile banking apps that put bank account management at consumers’ fingertips, or digital wallets replacing physical cards.

However, fintech innovation goes even deeper by streamlining processes and introducing new product offerings:

Peer-to-peer lending platforms disrupt traditional financing models
Alternative credit scoring uses non-traditional data sources
Embedded finance seamlessly bundles products with other services

While increasing consumer convenience, these digital solutions also make financial services more inclusive and personalised to your needs.

Lula’s funding uses tech to help business owners manage their loans, track payments and access statements and online applications to streamline the application process for small businesses and automated scoring models to assess creditworthiness.

what is retail finance infographic

What's next for
retail finance?

With technology accelerating change, what could the future of retail finance look like? Experts predict industry megatrends like the following:

These point of sale finance options allow customers to purchase and pay in installments over a certain period of time.

Using data and AI, lenders will increasingly customise products like savings and insurance plans to your unique life situation.

There’s a growing focus on ensuring ethical practices while promoting environmental and social good through ‘green’ financial solutions.

So, while fintech disruption is constant, the future of retail finance for the consumer promises more choice, flexibility and social accountability. On the other hand, business owners can expect easier access to funding, better financial tools and potentially new revenue streams from embedded financial products.

Alternative funding solutions for retail

Lula’s Revolving Capital Facility breaks the mould of traditional funding options for retail.

It offers funding with easy access, transparent terms and the ability to borrow and repay as needed. This liquidity empowers SMEs with the flexibility to adapt, invest and continuously grow.

Unlike many traditional retail finance providers and their credit facilities, Lula caters specifically to the needs of SMEs. This ensures that small businesses receive the financial tools they need to thrive in today’s market.

Get funded

How Lula can help
fuel retail growth

If you’re seeking retail finance to keep inventory stocked, ease cash flow gaps, or support growth plans for your SME retail business, Lula has alternative flexible solutions tailored to your needs.

Lula’s Revolving Capital Facility offers qualifying retailers an affordable line of credit up to R5 million to fund inventory, seamlessly fulfill purchase orders, buy inventory in bulk, bridge seasonality gaps, and more.

It gives you on-demand access to working capital with:

A fast online application and approval process

Competitive fixed fees (no hidden charges)

Early repayment discounts for lower borrowing costs

Easy account linking to see real-time available funds

Apply now to get started so you never miss a growth opportunity due to a shortage in working capital. With Lula’s funding solutions for retail, you have the funding you need at your fingertips to scale strategically and sustainably.

retail finance