Does accounting for e-commerce require industry knowledge? Challenges and traps for online sellers and their accountants

In today’s business landscape, e-commerce is becoming increasingly dynamic and competitive. For companies operating in this industry, maintaining effective accounting practices can pose a challenge due to the specificity of sales transactions and the diversity of documents involved. In this article, we will examine the issues that e-commerce entrepreneurs may encounter and provide insights into potential solutions.

Specifics of accounting services for the e-commerce industry

Accounting management for e-commerce companies significantly differs from that of traditional manufacturing enterprises. E-commerce businesses generate a considerably higher number of sales documents, leading to increased complexity in the accounting process. Each transaction, whether a sale to an individual customer or collaboration with business partners, generates a separate sales document that needs to be appropriately accounted for.

Traditional manual accounting methods prove insufficient, time-consuming, and can result in substantial costs for e-commerce firms. At amavat, we fully understand these challenges, which is why we offer our clients automated solutions that enable the swift and efficient processing of sales data.

Accounting challenges for e-commerce business

Due to the high volume of transactions in e-commerce, diversity of documents, business models, and payment methods, accountants must be able to efficiently manage and record large quantities of documents. Incorrect or delayed recording can lead to errors in tax calculations and loss of control over finances, potentially resulting in fines and interest.

In the field of accounting for the e-commerce industry, a variety of unique challenges may emerge that require knowledge and experience in reconciling online sales. Below, we will discuss in more detail four selected areas of challenges that e-commerce companies often have to deal with.

1. Payments through payment gateways: Transactions conducted through payment gateways such as PayPal, Stripe, Amazon Pay, PayU, Przelewy24 or Tpay require precise identification and association with the corresponding sales transactions. This process is not always straightforward, posing a risk of accounting errors.

   The first challenge faced by companies is the necessity to integrate different payment gateways with the accounting system. While most gateways offer integration options with popular e-commerce platforms like WooCommerce or Shopify, the process can be complex and time-consuming. Additionally, some payment gateways may impose additional fees for integration with the accounting system, increasing the costs of conducting online business.

   Another challenge that entrepreneurs must deal with is monitoring and reconciling transactions processed through payment gateways. In the case of a large number of payments made through various methods, tracking all transactions and assigning them to the appropriate orders can be challenging. Additionally, some payment gateways may generate reports in formats that are difficult to understand and require additional time for processing.

   An exceptionally significant issue is also the alignment of payments processed through payment gateways with accounting data. Errors in tax calculations can lead to the incorrect recording of payments in the books, resulting in inaccurate tax reporting or audit-related issues. Furthermore, differences in currency exchange rates or handling fees charged by payment gateways can impact the accuracy of accounting.

   Another challenge faced by entrepreneurs running online stores is protecting against fraud facilitated through payment gateways. While most gateways offer fraud detection tools, they may not always be sufficiently effective. As a result, entrepreneurs may be exposed to losses resulting from unauthorized transactions, further complicating the accounting process.

   Therefore, reconciling payments through payment gateways is becoming an increasingly significant concern for companies running online stores.

2. Deferred payments: Deferred and flexible payments options represent a method of payment in which the customer receives the goods or services immediately but pays for them later, typically after a specified period from the purchase date. This is a popular online payment method, facilitated through platforms such as Twisto, PayPo, Klarna, AfterPay or ZipPay, allowing customers to conveniently make purchases without the need for an immediate payment. However, this introduces a second risk area as deferred payments can create uncertainties in tax calculations, especially when a customer opts for a product return after some time. In such cases, it is crucial to accurately capture all payments and transactions and ensure proper tax settlement.

   Flexible payment options pose a significant challenge for e-commerce companies in the area of tax calculations and accountancy for several reasons. Firstly, the absence of immediate payment can disrupt financial liquidity, potentially leading to difficulties in meeting current obligations, including tax obligations. Secondly, delays can introduce uncertainty in financial planning, making it challenging to forecast income and expenditures. Additionally, flexible payment methods may generate additional costs, such as interest on overdue taxes. Finally, mismanaging this issue may result in legal and tax consequences, including penalties or sanctions from tax authorities.

3. Storage of goods and fullfilment services: E-commerce companies often use fulfillment services, which involve external warehousing and shipping management. This poses a challenge for two reasons: logistics operations must be accurately accounted for, and conventional accounting offices often lack experience in this area. Therefore, an accounting firm specializing in e-commerce can minimize the risks associated with this specific business model.

   Attention should also be directed towards the complexity of logistical processes, which may lead to difficulties in monitoring and tracking inventory status, as well as costs associated with storage and delivery. Additionally, differences in pricing policies, commissions, and handling fees among various fulfillment service providers can complicate the accurate allocation of costs. Furthermore, the variable pricing structure and additional fees introduce uncertainty regarding the actual costs and margins associated with individual transactions. There is also a risk of accounting errors related to tax calculations and handling returns and complaints. Another point of heightened risk is the time lag between the moment of sale and delivery, which can introduce additional complexities in accurately capturing the financial impact of transactions. As a result, improper tax calculations can lead to inaccurate financial data, subsequently influencing strategic and budgetary decisions for the company and exposing it to the risk of incorrect tax reporting. Therefore, thorough monitoring, analysis, and auditing of accounting processes related to warehousing and fulfillment services are essential to avoid traps and accounting issues.

4. Specific sales models on marketplaces: Specific sales models on marketplaces also require flexibility, a unique approach to accounting management, and an understanding of the industry’s dynamics. Due to the existence of various models and terms of collaboration with marketplaces, the approach to taxes and tax calculations should also vary. Transactions’ settlements in models such as FBA, FBM or Amazon Vendor requires a different perspective, and the accountant should have a solid understanding of the specific collaboration and sales models offered by the marketplaces. To ensure proper tax calculations in accordance with applicable legal regulations, the analysis of transactions is also crucial. This may seem obvious and even straightforward at first glance, but appearances can be deceiving. Some marketplaces provide sales reports in formats or files that are challenging to extract necessary information from, let alone analyze, without a good understanding of their intricacies.

Available solutions

As a company specializing in accounting services for the e-commerce industry, we have developed a range of technological solutions that help us automate and streamline accounting processes. Certainly, the first step in addressing the issues mentioned above is to entrust accounting services to a company that builds its team around experienced accountants and tax advisors. Their expert knowledge in e-commerce and tax regulations is essential.

Another crucial step in avoiding accounting problems in the e-commerce industry is to maximize the automation of accounting processes. Automation and integration of sales data retrieval constitute a key element in the efficient tax calculations and accounting management processes for companies operating in e-commerce. The essence of automation lies in utilizing tools and technologies to automatically collect, process, and analyze sales data from various online platforms, such as e-commerce stores, marketplaces or social channels.

The automation of this process enables quick and precise retrieval of transaction information, including products’ data, prices, customers, and sales locations. As a result, accounting can be kept informed in real-time about all transactions, facilitating the tracking of financial inflows and cash flow management. Moreover, automation eliminates the need for manual data entry, reducing the risk of errors and enhancing the efficiency of the accounting team, which in turn can significantly impact the cost of such accounting services.

The integration of sales data retrieval from online sales is crucial for data consistency and completeness. Through the integration of various sales systems with the accounting system, transaction data can be automatically transferred directly to the relevant accounting ledgers. This allows for ongoing monitoring and analysis of the company’s finances and quicker decision-making. Furthermore, automation and integration enable the generation of diverse reports and analyses, facilitating financial management and strategic decision-making. For instance, with access to detailed sales data, companies can identify sales trends, analyze the profitability of individual products or sales channels, and monitor the effectiveness of marketing efforts.

It is also worth emphasizing that the automation and integration of the sales data retrieval process can contribute to increased customer satisfaction. Through real-time monitoring of inventory and prompt response to changes in demand, companies can better manage product availability and fulfill orders promptly, positively impacting the overall customer purchasing experience.

In summary, the automation and integration of sales data retrieval from online sales enable swift and precise financial data management, eliminating the need for manual data entry and facilitating real-time analysis and reporting. Consequently, companies can better manage their finances, track sales results, and make faster and more accurate business decisions.

Faced with the multitude of specific accounting issues that form around an extensive e-commerce business that conducts multi-channel sales, combining the shop with:

• various sales platforms,
• logistics centres,
• courier companies,
• wholesalers, and
• accounting system

the solution lies in finding an accounting firm with experienced professionals possessing the expertise to address typical e-commerce tax and accounting issues and having access to integrations that streamline and automate the process of gathering dispersed information and analyzing it. This solution ultimately provides tangible benefits directly to the entrepreneur, making the accounting process smoother and less time-consuming, while business analysis reports accurately reflect the current state of affairs.

To conclude, managing e-commerce accounting comes with a set of challenges but also presents entrepreneurs with the opportunity to leverage professional services, automate processes, and receive support in the tax domain.

If you have an e-commerce business and you are looking for comprehensive and unique accounting for e-commerce, we invite you to contact our experts: Contact – amavat®.

amavat^® Team