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.
I went to the bank with a proposal over using Fulfilment saying it will work for us but we need a cushion for say six months before it kicks in and they refused us to loan the money even though we physically have the stock here, so for now ive had to let it go, but I want to do it, cos I want to move to Spain and do the work there and then bring it back ship it to Amazon and pay a lot less living / business rent etc
Yet more proof that the government instructions to the banks to increase lending to small businesses is working :-(
Wanting a cushion from the bank? Yes, probably right to turn down.
If you had said to increase stock turnover and increased sales you would have probably managed better. Banks do lend still.
Businesses are risky ventures for banks.
I don’t think Amazon will speed up the money it holds and then sends out, I am guessing they use this as working capital or if nothing else the intrest they may get from holding the amounts for two weeks. Intresting to see that Play/Rakuten are going to be following the same payment structure as Amazon for their new stores.
Spot on Stuart.
Amazon need working captital as a retailer themselves so hard to see them ever speeding up payments.
Rakuten on the other hand have a competitive opportunity now they stopped being a retailer to move to much faster payments like eBay/Paypal.
They should be encouraged to consider this with the new Pro merchants accounts in particular.
We have raised the issue already with them and we encourage others to do so.
Hi Glenn, this is Lisa from iwoca. You really have a point there, I have some good news though – we do 10 day loans. Because our loans accrue daily, you don’t need to keep them for 6 months. Instead, you can actually take them for 10 days and only pay interest for as long as you keep the money. For instance, on every £1000 you borrow, you would only pay around £15 interest for the whole 10-day period. And you don’t pay any upfront fees with iwoca, so getting a new loan few weeks later doesn’t cost you anything.
Thanks for the update Lisa.
Going to give this some thought and might even give it a try.
I wouldn’t be so bad if Amazon joins the Faster Payment service most banks have signed up to lately. This would cut the number of days a seller has to wait for monies transfered to reach their account to a just a few hours.
I find it strange that a modern technology company that Amazon is, has stuck to the old ways of interbank money tranfer. If they were to sign up to this Faster Payment service like PayPal has, it will help a great deal with cashflow because sellers won’t have to wait for 3 – 5 working days for their money. You can add another 5 days if you use the Italy or Spain platform.
As for getting a loan, that’s not an option for us because we’ve tried our bank and iwoca and got refused so we’re sticking with what we’ve got and expand slowly.
Paypal was forced by the regulators to do faster payments, because its a bank in Luxembourg.
As Amazon is not a bank they can take their time and profit from our interest.
Luckily I have a legacy Amazon account and can disperse on demand, not that I do i prefer the two weekly payments, its like being on the dole and getting a giro :)
I do feel for the people who don’t have a choice though :(
Amazon is not a bank, amazon is a company. How many other companies have signed up to the faster payment service? Cannot offhand think of any non-banks who have.
3 days isn’t too bad, cashflow can be managed and many suppliers give credit accounts on a 30 day or longer basis.
Amazon might not be a bank per say but I believe ‘Checkout by Amazon or Amazon Payments’ is a similar service provided by PayPal. I can’t name a company that provide that kind of payment service and still remain a non-bank either but here we are talking about Amazon.
There is an issue of cashflow for some sellers hence the topic.
Archie: As far as i know paypal is the main service similar to Amazon Paynments that is a bank.
Off the top of my head Nochex, Skrill, Sagepay, Google Checkout, Braintree all offer Paypal like services and none are banks. And thats just companies offering services in the UK.
Checkout by amazon could be said to be similar to credit card company processing. Few days for that to come through too.
If 3 days waiting for cashflow and a payment every 2 weeks is such an issue, is the right process in place to handle money?
Or would a better process work based on the particular payment dates?