Does your business already sell online or are you thinking of doing so? Either way attention must be paid to your bookkeeping!
In this month’s Fintech Friday, we look at the accounting challenges faced by ecommerce businesses and how you can address them.
2020 was a big year for ecommerce as Covid-19 has forced customers to shift their spending online. For a SME this shift in consumer spending habits brings great opportunities. You have access to a much wider customer base, and you can also become a seller on top selling channels such as Amazon.
As an online trader, you should consider things such as marketing, fulfilment and stock control. Often the accounting side is initially neglected. All industries have unique accounting requirements and ecommerce is no exception.
So, what are the challenges your ecommerce business may come up against and how will you deal with them?
Recording of sales
Your business may have high volume of sales transactions recorded on multiple channels. While it is not necessary to record these transactions line by line into your accounting software, a common mistake made is to record the receipt that enters the business current account as a sale. This results in the amount received into the current account not being a true sales value but in fact is the selling value less amounts deducted for items such as shipping fees/returns/stockholding costs and a settlement fee. Rather than just reconcile the receipt as sales, you need to adjust for these items.
Have you considered using a specialised ecommerce app to summarise transactions into your accounting software? Or, if an ecommerce app cannot be applied, for example, if your business uses multiple selling channels, a bespoke program can be written to summarise the transactions and bring them into your software.
How do you manage your inventory? This can be problematic as it is likely to be held in multiple locations or shipped directly from supplier to customer.
Inventory is a key figure on the balance sheet for online retailers. By managing your inventory effectively, you will benefit from:
- An up-to-date view of gross profit margins.
- Being able to provide a better customer experience.
- Holding optimum inventory at a level that prevents stockouts but ensures that your cash isn’t unnecessarily tied up.
If you are a small retailer, the inventory feature within an ecommerce app may be adequate. If you have many product lines, there are various apps available to help track your inventory. These apps can link into your online selling platform and your accounting software ensuring data flows seamlessly between both.
There are two VAT issues that ecommerce businesses should consider:
- Recording transactions in the correct period
If you use a selling channel such as Amazon or Shopify, there is often a delay between goods sold to the customer (point of sale) and funds being deposited into your current account. Often a receipt into the current account will represent sales over a few days.
By using an app or a bespoke program to summarise bulk transactions, you can ensure that sales are recorded on the correct date.
- VAT rules surrounding the import/export of goods
Ecommerce businesses are more likely to both import and export goods. While changes to VAT was planned prior to Brexit, the result of leaving the EU has brought about additional changes. In addition, the Covid-19 pandemic has caused the EU to postpone changes to VAT until 01 July 2021 while the UK has not. It is safe to say that VAT compliance this year will be a tricky business.
Accounting software such as Xero is ready to deal with VAT compliance changes such as postponed accounting. We recommend keeping in touch with your advisor who will help you navigate the changes over the next 12 months.
How can we help?
It is important that information is integrated into your accounting software in a timely manner so that an overall picture of your business can be viewed, and informed decisions are made based on real-time information. Choosing the right app to suit your business will save you valuable time and improve the quality of your financial information.
If you are interested in using the latest financial apps to integrate your selling channels with your accounting software, we can help you identify the right app to suit your business.
Below we have flagged some of the options available – but this is by no means an exhaustive list. For further help or advice, please contact our digital advisory team or call 0161 905 1616.