Bookkeeping Challenges of E-commerce Businesses

E-commerce businesses come with many challenges to it. Ask any fellow e-commerce business owner they will tell you that you are not alone. It faces challenges like ever-evolving customer expectations, data security, customer retention, and millions of other challenges. But this is not all; it also has its own bookkeeping challenges. These challenges exist because the e-commerce business is a complex business model.

While this business model has allowed businesses to reach out and cater to its customer worldwide instead of a limited geographic location, it has exponentially increased the challenges for business owners. These challenges extend to its different departments, with the bookkeeping department being a highly affected department.

Bookkeeping is a critical function that enables businesses to determine their financial standing and performance. With the help of accurate bookkeeping data, one can make better business decisions that can help enhance growth and profitability. Therefore, irrespective of multiple e-commerce bookkeeping challenges, bookkeeping is important and must be managed diligently. Learning about e-commerce bookkeeping challenges is essential as this will allow businesses to find the best solutions to deal with the issues and prevent themselves from losses or, even worse condition – bankruptcy! Let us know more about e-commerce bookkeeping challenges so that it is easier to find the right resolution.

Challenges in Bookkeeping for E-commerce Businesses

There are numerous e-commerce bookkeeping issues businesses face when managing their books that normal businesses do not come across. Some of the challenges that are faced in bookkeeping for e-commerce businesses are as follows:

1. Selection of accounting software:

The selection of appropriate e-commerce accounting software has to top all the challenges in e-commerce business bookkeeping. Considering the complexity of e-commerce accounting, it is apt to implement accounting software meant for e-commerce businesses. Accounting software can deal with most, if not all, accounting and bookkeeping challenges. There are many accounting software in the market that either have an e-commerce module or allow integrations with multiple other software that helps in the functioning of an e-commerce business.

2. Merchant fee tracking:

Most e-commerce businesses sell their product and services with the help of multiple e-commerce platforms, which charge merchant fees. While most platforms charge a flat monthly merchant fee, there are other charges that the e-commerce platform can charge you that are not as simple. And again, these fees will differ from one e-commerce platform to another. This poses a big challenge for the business owner as this can make it difficult to understand the actual cost of the revenue.

3. Tracking and reconciling inventory for multiple sales channels:

Inventory management plays a big role in the success of an e-commerce business. One must know what product is in excess or low in quantity to help cater to the customer in a timely fashion. However, it can be tricky, especially with multiple products, warehouses, and/or sales channels. Various online selling platforms have an integrated inventory tracking feature that facilitates managing and recording the stock. If you are selling on multiple online platforms, then a platform cannot record the sales made from another platform, and a proper inventory record cannot be made. Having a common platform to track and record inventory and update the accounts is crucial. A common platform for recording all the sales and sales returns is a must for bookkeeping for e-commerce businesses.

4. Balance reconciliation for multiple sales channels:

Whenever a sale is made, inventory and receivables from the channel change, making it crucial to timely record the sales made at the channel into your accounting software to have correct balance reconciliation as per your books compared to what is receivable as per the sales channel. When sales are made on different platforms, it becomes difficult to match the inventory records with the sales records.

5. Analysis of sales data for decision-making:

E-commerce businesses usually register themselves on different e-commerce platforms, meaning there is sales data from numerous platforms to be analyzed. There is a large volume of sales from different platforms. There are also various modes of payment for online sales. Some are paid through cash, some through debit or credit cards, and some through other modes. Collecting and analyzing the sales data from all these different aspects is hectic and time-consuming. Any missing data can affect the accuracy of the cash position, inventory, and overall financial statement and reports.
A proper process is needed to record sales and their payments to have correct sales data, which can be used to analyze the sales to make better decisions.

6. Tracking sales tax:

Keeping track of all the sales tax liability is one of the biggest challenges e-commerce businesses face, as the tax liability is based upon the state to which sales are made, so it varies from state to state. Since e-commerce businesses deal with customers from different states, accurately tracking them becomes even more crucial to determining the amount of tax liability for the state. For that purpose, it is important to know the different sales tax rates for different states in the USA. The sales tax rates vary from 2.9% to 7.25% at various state levels. Most states also have a ‘local option,’ allowing local jurisdictions like counties and cities to impose additional tax percentages on top of the state-level sales tax rates to keep up with the relevant revenues. As per the US Supreme Court’s decision in South Dakota v. Wayfair, Inc. case in 2018, businesses must have an economic nexus in the state for sales tax. A business can establish a sales tax nexus in a state when its retail activity in the state meets a certain amount of economic activity, be it in terms of dollars or number of transactions.

7. Manual accounting process for various sales channels:

E-commerce accounting involves tracking numerous aspects related to each sale, including the quantity of inventory sold, shipping costs, sellers’ fees, sales tax, etc. However, manually tracking and recording these data becomes strenuous as your business grows as the number or volume of transactions also increases. It can result in inaccurate or missing data, late filing of financial statements and taxes, and risk of fraud. Therefore, businesses need to be diligent in their data entry and bookkeeping processes. In such situations, the solution for businesses is to lean toward accounting and bookkeeping automation to manage their bookkeeping for e-commerce business with the help of an in-house expert or outsourced service provider. Using automation solutions provided by NetSuite, QuickBooks, Zoho, Xero, etc., for e-commerce businesses enables businesses to accurately and timely track all necessary financial data from various sales channels without much hassle and time.

8. Profitability of business:

The involvement of multiple sales channels in e-commerce businesses makes it difficult to determine the exact profitability of the business. Determining profitability involves tracking the sales and purchases made, sellers’ fees or commissions paid, sales tax liability, shipping charges, discounts (if any), inventory, returns, etc. Proper data compilation is necessary to conduct account reconciliation so that the exact productivity and profitability of the business can be determined. It is better to have a well-maintained accounting system set up within the organization. Alternatively, businesses can also hire outsourced services providers to manage the accounting and bookkeeping for e-commerce businesses. Implementing the latest and up-to-date automated accounting and bookkeeping solutions into the business’s accounting system ensures the data are accurate, updated, and safe. The ready availability of all the financial data in one place with the help of accounting software and tools makes it easier to understand the data and determine business profitability.

Conclusion

The above-mentioned are some common accounting challenges faced in online business. With the increasing demand and availability of e-commerce platforms, businesses must find solutions for these e-commerce accounting issues. From choosing the right accounting software to hiring experience e-commerce accountants are some of the must-do tasks for an e-commerce business

Useful Read: Accounting made easy for Amazon Sellers

Chances are that you are aware of the e-commerce bookkeeping challenges and are looking for ways to deal with them but are unable to focus on them because you have a lot to worry about as a business owner. There is a way to resolve this issue as well. You can hire a third-party accounting and bookkeeping services provider with expertise in managing the finances of e-commerce businesses. The outsourcing service providers have teams of experts with experience managing books for different businesses, which helps in saving time, resources, and money and adopting the best accounting practices for the businesses. In case you are looking for expert outsourced service providers, you can contact Whiz Consulting. At Whiz Consulting, we offer expert accounting and bookkeeping services to businesses from different industries, including e-commerce, to enable them to maintain and manage their accounts and finances. Give your business the best services it needs to ensure there are enhanced productivity and profitability.