Payment Reconciliation from E-commerce Portals

With the advent of e-commerce which is one of the fastest-growing sectors of emerging channels, there comes a need to manage the receivables in a very agile and highly responsive manner.?

Just like a typical general store, e-commerce transactions are also in the nature of B2C transactions and even the B2B portals like Udaan, Meesho etc work exactly the way B2C transactions work and the method of collection and remittance remains similar. In a nutshell, it’s a transaction-voluminous, spreadsheets, heavy bulk payments system which creates a need to do reconciliation around the payments received or receivable every time to ensure whatever is due is being paid or will be paid.?

There is one more fundamental change in the payment system when compared to normal accounting transactions i.e., the existence of an element of escrow in each and every transaction. However, in the case of e-commerce transactions, portals act as escrow or an agent who collects money on behalf of the sellers and as per the payment cycles remits the same to the sellers. Also, just to add to the intricacy, customer returns are an indispensable part of the e-commerce business and the same will be given effect in the payment settlements.

However, irrespective of the hardships that are involved in reconciling and collecting the receivables, e-commerce business today, can’t be ignored due to the large-scale impact it has brought in, in terms of business growth, customer acquisition, and easy brand-building process and other verticals.

Here are some of the important tips which F&A personnel has to keep in mind who is engaged in this process.

1. Build a Decentralised Approach: With the evolution of omnichannel management of inventory, sellers are trying to consolidate the approach towards e-commerce business which includes omnichannel inventory management, multi-channel order processing and return processing, inwards and WMS maintenance but F&A can’t really consolidate the approach but should have a decentralised view of the receivables. This is because each portal works on a different payment cycle, cost or rate card structure, and has different payment and tax withholding logic. Always develop different receivable Metrics for each individual portal and then reconcile the payment settlements.
2. Clear Pricing Strategy: ?It’s very important that the view of the settlement should always be kept while deciding the pricing as retrospective changes aren’t allowed in the dynamic environment within which the sellers are operating and a small miscalculation can lead to huge P&L badness. Having an F&A person involved in pricing decisions along with the account management or sales or business development person will ensure internal better control over the receivables.?
3. Clear understanding and documentation of the portal charges or overheads: Generally, portals have various headers under which the deductions are made or charges are levied. These include variable, semi-variable as well as certain fixed costs. The nature of the items includes commission, shipping, collection fee etc. Having a clear understanding of these and having the cost sheet master is a quintessential part of the reconciliation process.
4. Maintain a Pricing Master: Maintaining a price master day-wise will help detect errors or anomalies which might have occurred. The selling price of each of the orders can be compared with the approved price of the day and any aberration can be investigated. A lot of times promotions are run by the portals through some opt-ins or email approvals of deals or by any other means which will directly be factored in the payment selling prices whereas, the listing selling price can be different.
5. Analysing the real cash profits and working capital cycle: Since there is an element of cancelled orders, and returns in the e-commerce business, plain GMVs can be distorting. There are charges on reverse shipments which impact the P&L of the seller that gets ignored during pricing. Therefore, comparing the cost price of the products sold with an average realisation on net orders post-return charges gives a clear idea of the gross margin generated. Also, the average inventory exposed, and average receivables can be analysed to understand the working capital cycle of the business. This is an extremely critical part of the reconciliation which most of the sellers miss out on and just get carried away by the eye candy called “Gross Merchandising Value”. (GMV).

To summarise, the payment reconciliation process in the e-commerce space is extremely intricate but can definitely be cracked provided the best practices and the points above mentioned are kept in mind.?

There has to be a standardisation of the process with the help of technology which will reduce the manual errors to near zero. For a single seller, building a reconciliation technology platform might not be cost-efficient considering the economies of scale.?

Hence, to overcome this situation, sellers/brands can tie up with BuyMore, an e-commerce service provider that is servicing more than 400 brands in India and providing end-to-end e-commerce services to them. BuyMore has not only cracked payment reconciliations but all the aspects of the e-commerce business with the help of best-in-class technology coupled with the art of state operational infrastructure.

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