The online marketplace model continues to revolutionize eCommerce in both the B2B and B2C product segments.

For the smallest of sellers, marketplaces can open up a world of possibility in terms of product exposure in customer acquisition, while also negating the need to spend valuable resources on launching proprietary online selling platforms.

But the strategy comes with a catch. Marketplaces like Amazon and Walmart dictate much of the way money flows back to vendors, and those sellers must abide by the rules in order to reap the benefits of the marketplace model.

UpstartWorks CEO Rohan Thambrahalli said the way that these marketplaces place orders and pay invoices creates mounting challenges for sellers’ back-office accounting and accounts receivable (AR) workflows. With eCommerce sales volumes continuing to climb, vendors are finding it harder than ever to manage these complexities.

“We continue to hear pain points around how difficult and complex it is to manage accounting and reconciliation for eCommerce platforms,” he told PYMNTS.

As more vendors embrace marketplaces to sell their products, more businesses will come to a rude awakening about just how complicated B2B payments in the marketplace model can be.

Even Greater Complexity

B2B payments are notoriously complex. Unlike the straightforward transactions of consumer payments, commercial payments involve much documentation, data management, various timing of payments, and other nuances depending on the businesses involved.

While the marketplace eCommerce model may have made selling easier than ever, it’s also introduced even greater complexity to B2B payments between marketplace owners and the vendors in their ecosystems.

As Thambrahalli explained, a marketplace such as Amazon or Walmart will submit a purchase order (PO) to a vendor for a certain number of items at the wholesale price a vendor has listed or suggest a different price.

Fulfilling this PO is a critical moment for the vendor. Marketplaces can impose a variety of chargebacks or deductions for a variety of reasons, including if a vendor does not find exactly what was confirmed on the PO. Missing information within an Advance Shipment Notification, warehousing issues, or sending too many items are a few examples of potential chargeback costs that a seller can face, which can significantly cut into profits.

“Brands can have thousands and thousands of POs that they process, for example at Amazon or Walmart, and Amazon specifically has a very unique way of how they do accounts payable, which is very complex,” said Thambrahalli. “The vendors that sell to them don’t have in-house proficiency to address over-billing and deductions at scale.”

Readying The B2B eCommerce Wave

This particular challenge is not new, however, it is proliferating as eCommerce volumes spike. While the front end of eCommerce has evolved rapidly, the same cannot be said for the back-office of organizations participating in the marketplace model.

“The traditional way of doing accounts payable and accounts receivable hasn’t really matured to the eCommerce space,” Thambrahalli noted.

The greatest points of friction lie in the reconciliation process. Pinpointing these chargebacks within the lump sum payment made by a marketplace operator is no easy task, nor is applying that cash to the appropriate invoices. Further affecting cash management is the fact that these deductions can pile up, severely cutting into margins.

It’s a growing pain point that UpstartWorks is addressing with its accounting automation engine, which was announced this month, and it’s a challenge Thambrahalli said he expects will continue to grow for firms that lack the necessary technology to address it. Not only does that include accounting technology that can automatically identify, manage and reconcile these deductions, but it also means the adoption of tools like electronic data interchange (EDI) to exchange information with a marketplace operator in the way they require to confirm orders and submit disputes.

Considering the scale at which they operate, marketplaces are unlikely to begin submitting payment on a per PO basis, meaning this challenge is here to stay. And with B2B eCommerce growth riding the coattails of the B2C world, Thambrahalli said it will be especially imperative for industrial commercial brands to pay attention and get ready for this complex accounting challenge.

“[Consumer packaged goods (CPG)] brands are a little bit more advanced than industrial commercial brands might be,” he said. “But the industrial commercial brands are going to see exponential growth in their business via eCommerce, and those brands are not prepared for this accounting juggernaut.

“This is a problem that has a direct impact on the bottom line,” he continued. “eCommerce is a great platform for many brands to tell their story, but they must make sure that while they’re doing that, they maintain healthy profitability.”

– See more at: https://www.pymnts.com/news/b2b-payments/2021/upstartworks-marketplace-accounts-receivable/