Accounting Challenges Faced by e-Commerce Businesses

Sound accounting and finance practices will significantly enhance your e-commerce business's success. Growing your online store is more than knowing what your customers want; it also involves locating and delivering the correct products. There are numerous accounting challenges for small company owners in e-commerce: Your financial management is under pressure from various sources, including taxes and financial regulations, unstated costs, currency conversion, inventory, and profit margins.

Solid financial principles will increase your resilience in supply chain challenges and rising client demand. E-commerce accounting is essential because of this. If you get it right, you'll make better choices to support your company's expansion and success.

In this article, we'll review some of the most common accounting issues that e-commerce companies face and how to resolve them.

Standard Accounting Guidelines for Every Company

Instead of discussing accounting issues relevant to e-commerce, reviewing the fundamentals of good accounting that apply to all companies, traditional and virtual, is essential. Among the best accounting practices are:

• - Install an accounting system to track your company's inflow and outflow of funds.
• - Reconcile all transactions with your bookkeeping system using a company bank account.
• - Recognize your income, costs, and profits, as well as the money available to pay employees, purchase goods, and cover other necessary business obligations.
• - Calculate and remit taxes, both at the end of the year and on an estimated quarterly basis.

After you've learned the fundamentals, you can concentrate on the accounting challenges associated with e-commerce.

Accounting Challenges in E-Commerce and Solutions To It

1. Understanding, Selecting, and Fulfilling Sales Taxes

The additional taxes added to the cost of goods sold to customers are known as sales taxes. After deducting these expenses from the amount that customers pay, you will pay the appropriate taxes to the authorities. The issue is that there are wide variations in sales tax laws and rates based on several circumstances, including your location and that of the client, whether you have a "sales tax nexus," and other considerations.

This has the potential to grow highly complex quickly. An e-commerce company would incur significant accounting overhead if everything were done by hand. This issue can be resolved by:

• - Recognizing the sales tax due dates and the recipients of the payment
• - Examining the policies of Amazon and other third-party marketplaces on sales tax
• - Purchasing online accounting software for E-commerce businesses and a shopping cart that handles the computation and application of sales tax

2. Calculating the Costs and Overheads of Your E-Commerce

Businesses engaged in e-commerce must manage a wide range of expenses. Among them are:

These expenses quickly mount up, and you must deduct them from your profit on each item you sell. You must be aware of costs and expenses to price yourself correctly and include them in a fair profit margin.

To do that, you can:

• - Keep meticulous records of all expenses associated with product sales.
• - Classifying these expenses as part of your accounting
• - Using your accounting software's "Profit and Loss" report

Reviewing each item's total cost regularly

Once you know your expenses, you can modify your pricing and profit margins to cover your overhead and leave you with a little extra to expand your company.

3. Reimbursing Third-Party Marketplace Charges

A large number of online retailers use third-party marketplaces such as Amazon. If you do so, you will know that fees are associated with using these websites to sell your goods. Among the several pricing structures offered by Amazon is a comprehensive "Fulfillment by Amazon" solution that saves a lot of work but comes at a high cost!

These costs further strain your profit margins, so it's critical to comprehend and control them as much as possible.

• - Read the fine print in any third-party marketplace's seller agreement and fee schedule.
• - Consider additional costs while determining your selling prices.
• - Use the specialized accounting software to list items and determine the total fees you must pay.
• - Compare your listing costs to the amount the marketplace is charging you twice.
• - Reduce your listing fees by taking advantage of bulk listings and other specials.
• - In your accounting schedule, include all the listing fees as an expense.

4. Dealing with E-commerce Payments in Different Currencies

As your online store expands, this might be the ideal moment to go global. When that happens, you should accept payments in the buyer's currency and exchange them for your own before depositing the funds into your bank account. Unfortunately, there may be many unstated costs regarding foreign exchange rates.

• - Search for shopping cart software that offers you a wide range of choices about the currency you charge and the method of payment from the client.
• - Look into the exchange rates your credit card payment processors offer and how they compare to the standard, midmarket rate.
• - Leverage accounting and bookkeeping software that supports numerous bank accounts and currencies.

Keeping Enough Stock in Hand to Fulfill Demand and Forecast

The pandemic's problems have made the supply chain the main topic of news. Due to these problems, e-commerce companies need to do a better job than ever of stocking enough products to satisfy customers' demands.

• - Evaluate the level of demand for every e-commerce product line and check the lead time for product delivery from manufacturers and suppliers.
• - Establish accurate forecasts and projections to handle growing client expectations, particularly during busy times of the year.
• - Keep meticulous records of all the times you spend money with suppliers to avoid piling up excessive amounts of cash in inventory.

Wrapping It Up

For e-commerce businesses, the best online accounting software in India can help you see problems early on and address them. This frequently entails locating the appropriate software or carefully reading your agreements' fine print.