Fulfilment by Amazon and Cash Flow
Glenn is one of Tamebay’s regular commenters and has been contributing to the site for many years. Today he takes a look at short term finance with a suggestion of a finance product that could assist his business.
I am an Amazon 3rd party seller who uses Fulfilment by Amazon (FBA), and although I’m sure that good argument could be made both for and against FBA I prefer it to self fulfilling orders and the commitment that places on me. By eliminating the need to post and pack every working day I have reduced my working week to 4 days, although sometimes they are long days, but I benefit from a long weekend every week.
There is one significant disadvantage with selling by FBA which Amazon could resolve if it choose to do so: Cash Flow.
Every business large or small needs to balance cash coming in against cash going out and a few days delay in a payment can impact upon paying wages, rent, rates and suppliers.
Amazon transfers balance payments on a bi-weekly cycle, with an additional three to four day wait whilst my bank funds clear.
Unlike PayPal which generally permits the transfer of funds at any time, pro merchant sellers on Amazon only receive payment every second week. (Some old accounts can still disburse funds quicker.)
By the time a bi-weekly payment has cleared most pro sellers have already accumulated significant funds in the new payment cycle, which is frustrating because you can’t touch them.
Bi-weekly payments create a feast and famine problem when managing stock. Once payment clears new stock can be purchased or existing lines replenished, offered for sale and new sales processed. This results in the bulk of stock being purchased in the first week, and smaller top up quantity of stock the second week.
Cash flow and FBA
This problem however is amplified for FBA sellers, who unlike self fulfilling merchants need to prepare, package and post stock to a fulfilment centres before those products become available for purchase. An efficient seller using a reliable delivery company can convert received stock at their offices to products available for fulfilment by Amazon within 48 hours, although this gap widens in October and December.
If Amazon permitted weekly payments it would enable sellers to replenish quicker, which in turn would generate additional sales. Even if only 5% of the faster replenished stock sold in one week this is business growth and if you multiple this additional Income over a year you are starting to look at significant growth.
10 Day Loan requirement for FBA
Merchant Financing companies like ezbob and iwoca should review their lending strategies and consider offering a 10 day loan at a lower rate of interest to capitalise on Amazon sellers experience cash flow problems every second week.
I don’t want or need a monthly loan, but a 10 day loan would resolve the cash flow issue which occurs every second week and would enable me to maintain a structured restocking program.
It is incredibly frustrating to see significant funds building within your Amazon account knowing that you can’t access those funds and there is clearly a market for a 10 day ‘Cash Flow’ type loan.