The COVID-19 outbreak has created unprecedented challenges for sellers of all sizes around the world. There are many businesses that have taken a hard hit as a result of these circumstances, but some sectors of the economy, like e-commerce, have experienced a boom in sales during the pandemic. Due to stay-at-home orders and social distancing, online shopping has become the preferred way to make purchases for many consumers, which has had a major impact on e-commerce sales across industries. In fact, 21 percent of respondents to a recent survey said they were doing more shopping online now than before the outbreak.
For some businesses, this is the first time they're exploring e-commerce, while established online sellers are working to expand their presence into other channels. While having more customers coming your way is ideal for any business, there are a number of limitations and long-term implications that e-commerce businesses have to consider as sales increase swiftly.
New Tax Obligations
The ever-changing sales tax landscape has placed more compliance obligations on online businesses than ever before. Whether a business is going online for the first time or expanding their online presence, the risk of failing to understand and manage tax compliance correctly is paramount. The South Dakota v. Wayfair, Inc. ruling in 2018 gave states the power to collect sales tax from remote sellers. Since then, 44 states and the District of Columbia have adopted sales tax laws requiring businesses to use where their customers are located as part of determining compliance requirements.
Due to economic nexus laws, when online sales increase, there's the potential that you could trigger transaction thresholds that would bring new tax obligations to your business. Fortunately, tax automation technology tracks changing obligations in real time, allowing businesses to remain compliant without spending hours of time tracking new obligations on their own.
The tax obligations become even more complex if you're also selling internationally, and can quickly become out of control. Because consumers have the ability to make purchases from anywhere, sellers of all sizes are accessible to customers around the world. This unparalleled access to a global market also opens businesses up to a number of tax complexities that they would otherwise not have to take into consideration, such as customs duties and tariffs. From a customer experience perspective, if a cross-border sale doesn't include the cost of the duty or tariff at the time of purchase, sellers risk surprising customers with unexpected costs at the time of delivery and losing money on returned items.
While many states are delaying sales tax collection due to COVID-19, it’s inevitable that states will seek their share of online revenue in the coming months. When selling through multiple channels, it’s extremely important that all tax data is accurately aggregated from each channel in order to remit it correctly. For businesses still doing tax compliance manually, a boost in e-commerce sales can make this task burdensome and nearly impossible to handle.
Supply Chain and Shipping Interruptions
COVID-19 has impacted people and businesses in nearly every region of the world. As a result, the ripple effect on the supply chain is being felt by manufacturers all the way to consumers. Research shows that the outbreak may have already interrupted the supply chains of nearly 75 percent of all U.S. companies, which could translate to limited inventory, frustrated or upset customers, and canceled orders.
While e-commerce sales continue to rise, it’s important to make sure that your business keeps track of inventory so that all products being sold online are available. Keep in mind that it may take a longer time for your supplier shipments to come in, which could impact when your customers receive their orders. To combat being blindsided by interruptions, businesses can benefit from enterprise resource planning (ERP) systems to automate the management of supply chain purchasing to predict and stay on top of potential shortages. Likewise, due to the added level of uncertainty during this time, it’s important to be transparent with your customers and let them know if they should expect longer-than-normal wait times to avoid potentially poor customer experiences.
Shipping, fulfillment, and returns can also be a major roadblock for many retailers making the transition from brick-and-mortar to online, or trying to keep pace with the influx of online sales. Just as internal labor shortages could impact your operations, the same is true for your external delivery systems, such as USPS, UPS, and FedEx. Interruptions in shipping and fulfillment can mean that buyers will experience extended delivery dates, which may lead to some panic and negative customer experience.
Like accurate tax calculations and payment totals, shipping and fulfillment can make-or-break the entire customer experience. That’s why it’s best to keep your customers in the loop and notify them in the event of any potential delays. It’s important that your e-commerce platform provides built-in shipping options, including drop-shipping, printable shipping labels, and pre-setup shipping providers, which will help keep customers in the loop and minimize shipping delays on your behalf.
The COVID-19 outbreak is bound to bring unforeseen challenges to e-commerce businesses trying to navigate this time, but it’s certainly not impossible to manage. Now is the perfect time to use automation software across your business functions to help you streamline processes and give you more time to spend serving your customers.
Amit Mathradas is president and COO of Avalara, an automated tax compliance software solution.