An extra £40m is being sought by Bolton-headquartered AO after its share price slumped over the last two days.
Shares in the online electricals retailer have been on a downward spiral since 7am on Monday after it emerged that credit insurer Atradius had cut cover for the firm's suppliers.
Credit insurance protects suppliers against the risk of retailers collapsing before payment for goods is made, and, without this cover in place, suppliers often demand upfront payments, increasing cashflow woes.
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In response, AO has announced plans to launch a capital raise for new and existing shareholders, which will include placing for small retail investors, in order to boost its balance sheet.
In a statement issued to the London Stock Exchange, AO said that while it is "cash generative", the fundraise will "increase the company's liquidity back to historic levels... strengthen the balance sheet for suppliers and provide the flexibility to capitalise on market opportunities".
AO added that it continues to "rationalise, simplify and refocus its UK operations" as it looks to save around £25m by 2024-25, while setting itself a target to grow revenues by at least 10% a year.
Chief executive John Roberts said: "In addition to being a sensible piece of financial housekeeping given the short-term macroeconomic uncertainty, this capital raise will give us the necessary foundation from which to go after the significant long-term growth opportunities that we see for AO in the UK."
The firm said the "post-pandemic retail environment is substantially shifting" as some retailers are seeing the online boom experienced during lockdowns ease off, while there are also concerns over consumer spending on big items.
Mr Roberts insisted the so-called white goods market will hold firm, saying it has stabilised around levels seen in April and May this year.
"Our core major domestic appliance category is proving to be resilient over time, given the natural replacement cycle of white goods and their non-discretionary nature," he said.
The company is "mindful" of the wider economic uncertainty and ongoing supply chain disruption.
"Consumer behaviour is evolving as the step change in online consumer buying trends varies by category and the board will continue to monitor this closely and react as necessary," it said.
The group's share price has plunged from highs seen at the height of the pandemic as its trading has pared back. It issued its third profit warning in six months in April.
AO last month announced that it is to close its German business - which accounts for around 10% of annual group revenues - after eight years.
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