Do You Really Know How E-Commerce Platforms Are Impacting Your Bottom Line?
To stay afloat in the COVID-19 era, many smaller retailers have set up e-commerce sites on Shopify and Etsy or partnered with online marketplaces like Amazon.com and Walmart to sell their products. And even now most restaurants are still using online delivery services like Grubhub, DoorDash, and Uber Eats to make their takeout options more attractive to stay-at-home diners.
Most of these online services offer a variety of online payment methods other than traditional credit card payments. And this trend will continue. According to FIS, digital wallets will account for more than half of all e-commerce payments worldwide by 2024, and the adoption of buy now, pay later (BNPL) will double.
While these online services can deliver the revenue retailers and restaurants need to offset drops in brick-and-mortar sales, they can also make it difficult for businesses to get accurate, updated P&L information.
Why? Because while most marketplaces and payment vendors are good at reporting gross sales, few provide detailed or comprehensible summaries of fees, commissions and other service charges in formats that accountants and bookkeepers can easily import into QuickBooks and other accounting systems for deposit reconciliation purposes.
This creates a problem when a retailer’s bookkeeper needs to reconcile sales figures with actual deposits. And the problems get even worse when retailers don’t reconcile their accounts on a daily basis.
Here’s an example: In January 2022, a bookkeeper who recently started using our technology was hired to go over the books of an apparel retailer that uses Shopify as its e-commerce platform. The retailer hadn’t done any kind of P&L reporting in 2021, so she had to spend many hours manually reconciling monthly sales reports against actual monthly deposits.
Her forensic accounting found that in the middle of 2021 Shopify reported $5,000 in sales that were never deposited to the retailer’s bank account. Whether this discrepancy was accidental or intentional will never be known because too much time had passed.
It’s easy for these kinds of mistakes to occur, and even harder for bookkeepers to find them, especially if a retailer uses several different sales platforms, each of which may use numerous payment systems.
Retail Accounting is Still a Manual Process
What retailers don’t understand — and too often don’t appreciate — is that no standardized process yet exists for automating the delivery of daily sales data that bookkeepers need to reconcile their accounts.
Instead, many sales marketplaces like Amazon and Walmart and various payment vendors require bookkeepers to log onto each provider separately and then download an often-bewildering variety of sales reports to capture and analyze the various sales taxes, service charges, discounts, commissions and fees these platforms deduct from each sale.
If they’re lucky, this data is provided in spreadsheet formats a bookkeeper can analyze using pivot charts in Excel. But more often than not, bookkeepers only get order reports that require them to summarize and then manually enter this data into their accounting system.
Even worse is the bookkeeper that just books deposits to the income account. This is a big mistake and way too common.
It’s a labor-intensive, error-prone process. However, most bookkeepers will insist that this kind of daily reconciliation is absolutely essential since retailers need this information to keep their general ledger up-to-date and get a deeper understanding of how fees and other charges are impacting their revenue projections. Yet too many business owners don’t understand how much additional work they add to their bookkeeper’s workload every time they sign up for a new payment vendor or digital storefront.
Even worse, many business owners who have no problem allowing their e-commerce partners to walk away with 30 percent or more of their gross revenue also complain that they’re paying too much for their bookkeeping services, or don’t provide them with full access to all of the reports available from these online vendors.
Business owners who feel this way could be sabotaging their very survival. If they only look at gross sales figures without reconciling their accounts every day, they’ll get an inaccurate picture of their P&Ls. They won’t see how various fees and charges are reducing their already-tight margins. They won’t immediately identify discrepancies where vendors don’t make the deposits they’re responsible for.
Technology Can Help Identify Fees and Reconcile Balances Automatically
For years, accountants and bookkeepers have been calling for a standardized process for automating the reporting of daily summaries of sales and debits from e-commerce and online payment vendors.
Ideally, each vendor would post these summaries at the end of the day. The bookkeeper would download and import them directly into their accounting platform, enabling instant reconciliation with deposits posted to their clients’ bank accounts. Discrepancies and errors could be identified immediately. And retailers would know exactly how fees, commissions and other charges are impacting their net revenue.
Unfortunately, this kind of standardized automation exists only on bookkeepers’ wish lists. Fortunately, this void is slowly being filled by a new generation of technology firms that are committed to developing automation platforms that automate the most popular sales and payment platforms.
For example, Bookkeep’s platform enables bookkeepers to automatically capture and post daily journal entries from Amazon, Grubhub, Shopify and other platforms into QuickBooks or Xero and reconcile them against bank deposits in minutes.
But behind these automated platforms are many months of customized development to accommodate the different reporting structures each vendor uses. Accounting automation standards will simplify the exchange of financial data within the industry, but until then there are steps retailers can take to more fully integrate and align their front office to their back office.
Your Accountant Will Help You Maintain an Accurate, Healthy P&L ... if You Empower Them
First, before you choose any third-party sales platform or payment vendor, empower your accountant or bookkeeper to thoroughly investigate the frequency, quality and usability of the sales summaries the vendor provides.
Ideally, vendors that deliver this information in formats that are difficult and time consuming to decipher and reconcile should be rejected. However, if you decide to move forward with the vendor anyway, your bookkeeper will at least be able to estimate how much extra they’ll need to charge to manually retrieve and reconcile this information.
As a retailer, you shouldn’t question these costs. After all, it’s in your best interests to know exactly how much net revenue you’re earning every day so you can have an accurate P&L picture at all times. If getting this information increases your bookkeeping costs, that’s one investment that will definitely pay off in terms of greater business efficiency over the long run.
Jason Richelson is CEO and co-founder of Bookkeep, an accounting automation platform for independent bookkeepers, accounting firms and growing businesses. He is also the creator of ShopKeep, a cloud-based POS system used by more than 25,000 retailers and entrepreneurs.
Related story: How BNPL Can Become Too Much of a Good Thing for Retailers
Jason Richelson is CEO and Co-founder of Bookkeep, an accounting automation platform for independent bookkeepers, accounting firms and growing businesses. He is also the creator of ShopKeep, a cloud-based POS system used by more than 25,000 retailers and entrepreneurs.