How Automated Accounting Engines Can Salvage Online Profitability | E-Commerce
By Jack M. Germain
Aug 26, 2021 4:00 AM PT
A much-awaited shopping splurge by pandemic-weary consumers is greeting online retailers with an unanticipated worsening of a recurring back-end problem. Fractured supply chains are causing worsening product delivery delays. That, in turn, is wreaking havoc with e-tailers’ bookkeeping software.
As post-pandemic restrictions ease, consumers have been spending the hot summer months splurging on clothes and household amenities. This summer’s surge in spending is making digital retailers more vulnerable to accounting errors that result in significant revenue losses.
To address this issue, UpstartWorks developed an automated system to audit and recoup unpaid invoices lost in the supply chain quagmire. Its new accounting automation engine simplifies complex receivable vendor data, identifies, tracks, and resolves costly marketplace oversights that can save businesses millions.
That process first addresses sellers on the Amazon marketplace. Rohan Thambrahalli, founder and president of UpstartWorks, describes that need as critical because Amazon is a glaring example of how delayed payments and other routine accounting mistakes from vendor sales can overwhelm online merchants.
“It is a problem that exists across multiple platforms. We have chosen to tackle Amazon first because it is the biggest player in this space, and the most impactful one for our clients,” Thambrahalli told the E-Commerce Times.
Rohan Thambrahalli, UpstartWorks
Founder and President
Some of the biggest brands in the world use the UpstartWorks e-commerce platform, he added. His goal is to add accounting automation engines into the platforms used by his clients for other marketplaces.
What his company aspires to do is build a platform that can simplify product commercialization for any brand that wants to launch products across multiple e-commerce systems.
This will serve content-driven, intelligence-driven, and supply chain-driven sellers to help solve the gaps in product distribution. That is where the operational accounting platform addition was so urgent.
“One of the things that a lot of people struggle with is the way e-commerce platforms do their accounting. Accounts payable specifically is a big black hole for several brands,” Thambrahalli said.
Targeting the Amazon Marketplace
A continuing roadblock to reinvigorating sales growth remains the supply chain issue. That broken delivery roadway still exists. At the very least, supply chain roadblocks are hampering the backroom computer operations of large and small retailers.
Thambrahalli is focused on removing that hurdle. He is concentrating on building the best product commercialization platform so brands can leverage automation to commercialize their products across multiple platforms.
The accounting automation engine, which automates a retailer’s entire financial profit and loss picture, could be a major solution to vendors marketing on Amazon. The Amazon marketplace, it seems, is Thambrahalli’s primary target.
“If you are a vendor selling to Amazon, because of all the different chargebacks that happen on a daily basis, you really do not have a good idea of what your P&L looks like. We built our accounting automation engine to give brands a very defined P&L metric as it relates to their Amazon business,” he explained.
The secret problem that nobody talks about is missing payments. Some of these unpaid invoices are never even recognized. When he and some of his platform subscribers started noticing this issue, it became a huge eye-opener.
Whether invoices accumulate on a weekly, monthly, or quarterly basis, Thambrahalli and his clients started to notice, in some cases because of how accounting is done, that vendors are not necessarily getting paid from 50-to-75 percent of the time.
Examining Accounts Receivable
The unpaid invoice and payment schedule issues existed prior to this summer’s buying splurge, Thambrahalli admitted. But he thinks it is amplified now for both businesses that were starting to grow since last year as well as those that are not expanding.
For those vendors experiencing a decline in business despite the summer’s consumer spending spree, they are seeing a decline in revenue and are feeling a cash crunch.
UpstartWorks added the automated accounting engine to the company’s platform to first serve clients doing business with Amazon. It gives users a 360-degree view for any brand to be able to launch and discover products.
The platform also lets retailers go into accounts receivable records, identify product assortment gaps, and see what their competitors and the product category are doing.
“Retailers really get a holistic view of how they should be commercializing their product or brand on any given platform,” said Thambrahalli.
For example, vendors can leverage their accounts receivable. One started to dig into this payment issue and found out that despite shipping two million dollars’ worth of product to Amazon, they were not getting paid nearly in time. It did not matter that the terms were 30 days. They were getting paid in 90-to-220 days.
“That reduces the ability to borrow money from the bank,” said Thambrahalli. “Several of the brands that use our platform were really challenged with profitability.”
Unfair Cost of Business Reduced
Chargebacks, incorrect billing, overbilling — invoicing problems got significantly bigger because as the top line grows, so does the accounting demand for accuracy. UpstartWorks this year dove into solving those financial issues for retailers.
“The multiplier effect really happened because of increasing all the raw material costs. The small accounting reconciliation piece really came to the surface for us,” noted the UpstartWorks founder.
His company spent the last year automating and adding reconciliation to the platform. That segment allows account reviewers to look back over invoices accurately and speedily for up to five years. Those internal audits have led to discovering errors in shipments, overbillings, and inaccurate billing. Audits turned up errors in chargebacks and long pay cycles as well.
“It also let me show vendors how much money we can go recruit for them from Amazon,” said Thambrahalli.
To prove his point about accounting backlogs, Thambrahalli shared with the E-Commerce Times a redacted spreadsheet audit report for an unidentified platform user. The displayed page showed an overbilling of $8,000 by Amazon to this vendor.
In such cases, the UpstartWorks team used the analysis and the data gathered and stitched together to raise disputes with Amazon. The dispute successfully got the vendor a refund of $421,000.
UpstartWorks manages the audits and the disputes for the vendors. The entire process is handled in-house.
For vendors to conduct their own audits manually would take an army of accountants. In this vendor’s case, UpstartWorks scanned 7,692 purchase orders, analyzing each line item.
“We can do this at scale, going back five years. We went all the way back to 2018 from December to June 2021; and [found] this much money. In other cases, our audits show over billings anywhere from two to 10 percent of the total invoices scanned. So, the numbers can get big,” noted Thambrahalli.
Boost to the Bottom Line
In some cases, there are brands where the audits identified two or three million dollars’ of overbilling. So, with supply chain constraints and raw material costs going up, this auditing process has been a great value because this is money that can go straight to the vendors’ bottom lines, he added.
Many Amazon vendors are small-to-medium-sized companies. In the audit Thambrahalli shared for the period July 2019 to June 2020, 75 percent of the merchant’s accounts payable was stuck in this vicious cycle, Thambrahalli pointed out.
“I am not saying that this is the holy grail of all the problems they are facing. But hopefully this will help alleviate a little bit of pressure on profitability that several brands are facing — given the macro conditions in the market currently,” he reasoned.