Accounting Best Practices for E-commerce Merchants

In the dynamic world of e-commerce, a solid financial foundation can set your business apart. Beyond just keeping your books in order, the right accounting practices help provide deeper insights, driving sales, sharpening your forecasting, and ensuring that every dollar spent or earned is accounted for. With clarity over how your inflows and outflows behave, you can spot opportunities and threats to guide your decision making and improve your odds of success. Let's delve into these practices and discover how they can elevate your e-commerce journey.

Harness Automation with Purpose

With tools like Reconcilely, automation isn't merely about streamlining tasks; it's about crafting an efficient narrative for your finances. Not only do errors take a backseat, but you also gain access to more accurate analytics in your accounting system like Xero or Quickbooks. The value is multi-dimensional: less time spent on tedious but important tasks like reconciliation, a surge in analytics accuracy, and more room to strategize, positioning your brand at the forefront.

Dive Deep with Key Financial Metrics

The pulse of your e-commerce venture can be felt through metrics like Customer Lifetime Value (CLV), Average Order Value (AOV) and Cart Abandonment Rate (CAR). The result of this diligent metric monitoring is more than just enhanced sales; it’s about creating experiences that resonate with customers. When consumers feel understood and catered to, they are more likely to return, leading to increased loyalty. This loyalty not only boosts repeat business but also turns customers into brand advocates, amplifying your reach. 

Adopt Periodic Financial Health Checks

Instead of just annual reviews, imagine the power of monthly or quarterly insights. Regular financial health check-ins act as your business's early warning system, spotlighting trends and potential roadblocks. By keeping a close eye on the financial health of your business, you ensure that you're not reacting to market changes but proactively adjusting to an evolving landscape. There are several very effective reporting tools that provide you with these capabilities and many eCommerce platforms include very robust reporting mechanisms baked in.

Embrace the Power of Reconciliation

Reconciliation isn't just about number-matching. When you align your reconciliations with actual payout schedules, such as those from platforms like Shopify, you tap into a goldmine of data that is often trapped behind heaps of tedious reconciliation work.Using tools like Reconcilely can streamline this process by sending data to your accounting systems on a per payout basis rather than some other arbitrary amount of time. What you end up with is an invoice that exactly matches your payout accounting all the activity from the payout. But it also helps inform a more real-time cashflow statement from your accounting system, which is crucial for planning your buying and marketing strategy.

Navigate the Maze of External Payment Providers

There are hundreds of payment gateways available to merchants worldwide. These range from global giants like PayPal, Stripe, and Square to more regional or specialized gateways. Each comes with its own fee structure, which, if not accounted for, can impact your understanding of your actual net revenue. 

By tracking these fees closely, you'll have a clearer view of your revenue streams. This clear vantage point means you can price products right, ensuring you're both competitive in the market and hitting your desired profit margins.

Avoid Costly Chargebacks and Excessive Payment Processing Fees

Chargebacks can be a significant liability for merchants. They not only erode profits but can also impact a merchant's standing with payment processors, leading to higher fees or even account termination. To avoid chargebacks, merchants can leverage solutions like Chargeflow, which automates the dispute process using artificial intelligence. By integrating such advanced tools, merchants can proactively address disputes, provide compelling evidence in their favor, and reduce the likelihood of chargebacks. Moreover, from an accounting best practices standpoint, using automated solutions ensures that records are meticulously maintained, making it easier to reconcile accounts and verify transactions.

Excessive processor fees are another challenge eCommerce merchants face. These fees can quickly accumulate, eating into the profit margins of businesses. By maintaining a low chargeback ratio with the help of solutions like Chargeflow, merchants can negotiate better rates with payment processors.

Deciphering Gift Card Accounting

Gift cards can be a boon, driving sales and enhancing customer loyalty. However, their accounting can be complex. When a customer redeems a gift card, it's essential to account for it not just as revenue but also in terms of inventory and cost of goods sold. That way, you ensure that your financial picture remains clear, even with the inclusion of these popular sales tools. 

You should only be counting gift card spend as revenue once the gift card has been redeemed. And with clarity comes the confidence to strategize, innovate, and offer your customers even more value.

Keep Inventory and COGS in Sync

Inventory management is the backbone of e-commerce. By ensuring that your inventory levels and Cost of Goods Sold (COGS) are always in sync, you eliminate guesswork. This means you can make informed purchasing decisions, understanding precisely when to restock and how much to buy. The outcome is two-fold: you reduce the risk of stock-outs (and lost sales) and avoid overstocking which can tie up valuable capital.

So, in addition to periodically scanning metrics and tracking fees, another crucial best practice for keeping inventory and COGS in Sync is streamlined invoicing. Customizing your invoice template ensures that each transaction is represented accurately. That helps you maintain a consistent format for calculating totals and keeping all essential elements intact. This streamlines accounting practices. It also helps in portraying a professional image to clients.

Conclusion:

The challenge of e-commerce can be as difficult as it is rewarding. Using tools (like Reconcilely and Chargeflow.io) helps position your brand behind time-tested best practices that help you take advantage of the superpowers made possible by platforms like Shopify. Save time, increase sales and behave much larger than you might be by paying attention to the elements that are putting pressure on your next growth opportunities. Hopefully, these best practices will help illuminate the way to your success.

About the Author:

Eyal Toledano

CEO at Reconicle.ly

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