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Worrell Fry & Co. Ltd

Contact: Mike Maskell
Address: 55/57 Aldwick Road, Bognor Regis, PO21 2NJ
T: 01243 841710
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Worrell Fry insurance brokers, based in Bognor Regis, offer competitive and high quality insurance policies, provided by the country’s best known and…

Listed in: Insurance

With the rapid decline of the high street and the ascendance of online sales, more and more businesses are using internet channels as a prime source of revenue.

As well as your own website, the option to sell on third party online marketplace platforms such as eBay, Amazon, and Etsy etc. can be a major draw. For a % of each sale, these online goliaths introduce you to a market you would struggle to find without massive investment in marketing. However, fore giving you access to their customer base, their marketing machine, their payment solutions and everything else you get to boot, they do expect you to trade on their terms.

From an accounting perspective you need to be aware of how to treat this though.

Let’s use Amazon as an example.
If you sell something on Amazon for £100.00 including VAT, Amazon will pay you (say) £80.00. The missing £20.00 is made up of an 18% service charge and a £2.00 credit card processing charge. You receive the net figure of £80.00 payment into your bank (normally fortnightly). However, the sale in terms of your accounting is not just £80.00. You still have to account for the full £100.00 and the VAT within that.

The charges from Amazon need to be shown in your cost of sales but this cannot be achieved via the sales ledger. Therefore you cannot raise a £100.00 invoice with a minus figure of £20.00 to get to your £80.00 net value.

Instead you will need to raise a sales invoice for £100.00 including VAT to the end user (with shipping address) and a separate 2 line purchase invoice to Amazon, as a supplier, for the credit card charge and the service charge. 2 lines as these will invariably be accounted for separately. You will need to receive £100.00 into your bank account for the sale and make a payment of £20.00 to Amazon for the charges – making your bank receipt a net £80.00

Dependent on the terms of your relationship with Amazon, Amazon may actually be your customer, not the ultimate end user. In this case, and subject to your accounting system, you may be able to ‘contra’ the revenue and the cost i.e. using one to pay off the other, but for most small companies this type of corporate level trade with Amazon is rare.

So whilst Amazon and other major online channels may appear to offer a road to riches, it is worth making sure that you know exactly how they will trade with you and the impact on you from an accounting and cost of goods sold perspective.

You will also need to bear in mind their returns policies – the customer is right.  If an item is bought through one of these sites and returned to you in no matter what state (even if the customer has damaged it – the customer will get their refund one way or another – either from you or via a charge back from the site.  It can be time consuming trying to dispute this with these giants.

If you’re unsure about how this might impact your cashflow, the world of online marketplace and business, we’d be happy to chat it through with you.