Why Payment reconciliation is critical for your e-commerce business

For most sellers, listing inventory on marketplaces itself is a big task. Whether you’re a trader or manufacturer, inventory keeps changing and you should have done atleast the basic of these following actions:

1. done up the SKU listing really well,
2. added nice photos,
3. got great SEO optimised content and
4. generated enough reviews
5. Added the correct taxes as per the HSN code

Even so, you do have to actively manage its pricing and quantity everyday to ensure you’re selling well and not running out of stock.

Add to this, once the order is made, you dispatch the SKU and then what? Your product is sold but your money is not in!

Most marketplaces have a 1-2 week payment cycle, meaning they release the cash they received for your product after a certain delay from the time the order was made. What this means is

1. You need to have enough working capital to wait for inventory to COGS to happen
2. You ALSO need to have enough working capital for this payment from the marketplace to happen.

That’s actually a double whammy for the cash flow from operations. But it’s not all bad, you have a nice distribution channel online which most buyers flock to (especially if it’s well known such as Amazon or Myntra), and once the listings are set up, it’s minimal effort to sell on a continuous basis. In effect, the marketplaces get you a lot of eyeballs, but you should still have your eyes on this eyeball-to-working capital tradeoff.

Usually, when the marketplace makes a payment, it also gives you a detailed excel sheet mentioning which orders were paid out to you. Then it deducts some commissions and its own taxes and pays out the rest to your bank account. These commissions are shown as revenues for the marketplace and the taxes are the taxes on these revenues, that amazon levies on the seller.

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Good marketplaces will always show the deductions in the form of per-order commissions and taxes and then an overall deduction.

Let’s take a look at Amazon’s payment reconciliation excel sheet. Each order has a value equal to the sum of item value, item tax and shipping. And then there are commissions and taxes deducted on them.

As a seller, what should you do to understand your payments?

Well, firstly, you need to add up all the payments received in your bank. If it’s amazon, they make 2 payments a week, once for COD and once for prepaid orders.