Glenn is one of Tamebay’s regular commenters and has been contributing to the site for many years. Today he takes a look at short term finance with a suggestion of a finance product that could assist his business.
I am an Amazon 3rd party seller who uses Fulfilment by Amazon (FBA), and although I’m sure that good argument could be made both for and against FBA I prefer it to self fulfilling orders and the commitment that places on me. By eliminating the need to post and pack every working day I have reduced my working week to 4 days, although sometimes they are long days, but I benefit from a long weekend every week.
There is one significant disadvantage with selling by FBA which Amazon could resolve if it choose to do so: Cash Flow.
Cash Flow
Every business large or small needs to balance cash coming in against cash going out and a few days delay in a payment can impact upon paying wages, rent, rates and suppliers.
Amazon transfers balance payments on a bi-weekly cycle, with an additional three to four day wait whilst my bank funds clear.
Unlike PayPal which generally permits the transfer of funds at any time, pro merchant sellers on Amazon only receive payment every second week. (Some old accounts can still disburse funds quicker.)
By the time a bi-weekly payment has cleared most pro sellers have already accumulated significant funds in the new payment cycle, which is frustrating because you can’t touch them.
Bi-weekly payments create a feast and famine problem when managing stock. Once payment clears new stock can be purchased or existing lines replenished, offered for sale and new sales processed. This results in the bulk of stock being purchased in the first week, and smaller top up quantity of stock the second week.
Cash flow and FBA
This problem however is amplified for FBA sellers, who unlike self fulfilling merchants need to prepare, package and post stock to a fulfilment centres before those products become available for purchase. An efficient seller using a reliable delivery company can convert received stock at their offices to products available for fulfilment by Amazon within 48 hours, although this gap widens in October and December.
If Amazon permitted weekly payments it would enable sellers to replenish quicker, which in turn would generate additional sales. Even if only 5% of the faster replenished stock sold in one week this is business growth and if you multiple this additional Income over a year you are starting to look at significant growth.
10 Day Loan requirement for FBA
Merchant Financing companies like ezbob and iwoca should review their lending strategies and consider offering a 10 day loan at a lower rate of interest to capitalise on Amazon sellers experience cash flow problems every second week.
I don’t want or need a monthly loan, but a 10 day loan would resolve the cash flow issue which occurs every second week and would enable me to maintain a structured restocking program.
It is incredibly frustrating to see significant funds building within your Amazon account knowing that you can’t access those funds and there is clearly a market for a 10 day ‘Cash Flow’ type loan.
13 Responses
I went to the bank with a proposal over using Fulfilment saying it will work for us but we need a cushion for say six months before it kicks in and they refused us to loan the money even though we physically have the stock here, so for now ive had to let it go, but I want to do it, cos I want to move to Spain and do the work there and then bring it back ship it to Amazon and pay a lot less living / business rent etc
I don’t think Amazon will speed up the money it holds and then sends out, I am guessing they use this as working capital or if nothing else the intrest they may get from holding the amounts for two weeks. Intresting to see that Play/Rakuten are going to be following the same payment structure as Amazon for their new stores.
Hi Glenn, this is Lisa from iwoca. You really have a point there, I have some good news though – we do 10 day loans. Because our loans accrue daily, you don’t need to keep them for 6 months. Instead, you can actually take them for 10 days and only pay interest for as long as you keep the money. For instance, on every £1000 you borrow, you would only pay around £15 interest for the whole 10-day period. And you don’t pay any upfront fees with iwoca, so getting a new loan few weeks later doesn’t cost you anything.
I wouldn’t be so bad if Amazon joins the Faster Payment service most banks have signed up to lately. This would cut the number of days a seller has to wait for monies transfered to reach their account to a just a few hours.
I find it strange that a modern technology company that Amazon is, has stuck to the old ways of interbank money tranfer. If they were to sign up to this Faster Payment service like PayPal has, it will help a great deal with cashflow because sellers won’t have to wait for 3 – 5 working days for their money. You can add another 5 days if you use the Italy or Spain platform.
As for getting a loan, that’s not an option for us because we’ve tried our bank and iwoca and got refused so we’re sticking with what we’ve got and expand slowly.