Small Businesses Face Cashflow Disruption as Amazon Extends Sale Proceeds Wait Time

Small Businesses Face Cashflow Disruption as Amazon Extends Sale Proceeds Wait Time

8 Aug    Finance News, News

Thousands of small businesses in the UK and Europe are concerned about their financial stability as Amazon announces a change in its policy regarding the release of sale proceeds.

The decision to hold onto the funds for more than a week has left many sellers worried about the impact it will have on their cashflow. This move has sparked fears that some businesses may even be forced to go bust.

The Policy Change

Amazon, the global e-commerce giant, recently notified marketplace sellers in the UK and continental Europe about a change in their payment process. Previously, sellers had to wait up to three days for the funds from a sale to be released into their accounts. However, the new policy states that sellers will now have to wait a week after an item has been delivered before they can access the sale proceeds.

In a letter seen by The Guardian, Amazon acknowledged that this change might cause a “one-time cashflow disruption” for sellers. While Amazon claims that over 85% of sellers in Europe will not be affected by this change, small businesses are concerned about the potential impact on their operations.

The Impact on Small Businesses

Small businesses heavily rely on the prompt release of funds from their sales to manage their day-to-day operations. With the new policy, sellers will have to wait a minimum of 10 days after delivery before they can access the cash. This delay in receiving funds could have a crippling effect on smaller enterprises, potentially leading to financial difficulties and even bankruptcy.

According to The Guardian, some sellers have reported having thousands of pounds held back. One seller revealed that they had over £100,000 “locked in Amazon.” Another seller expressed concern that they would be owed approximately £35,000 after seven days, which would impact their ability to pay staff and loan repayments on time.

The situation is not isolated to the UK alone. Amazon has approximately 225,000 small- and medium-sized businesses selling through its marketplace across Europe. Roughly 15% of these sellers, equating to about 33,750 businesses, could be affected by the extended wait time for sale proceeds.

Comparison to Etsy’s Policy

This is not the first time an online marketplace has faced backlash over holding back funds. Etsy, the popular online craft marketplace, also implemented a policy in late May that involved withholding up to 75% of some sellers’ takings for at least 45 days. UK vendors boycotted Etsy, demanding a reduction in the amount held back. After facing criticism, Etsy announced that the most common level of reserve would likely be reduced to 30%.

While some sellers on Etsy were released from the reserve system after media attention, others still experienced the negative effects of the policy or had their online shops suspended. This example highlights the impact that changes in payment policies can have on small businesses and the importance of maintaining a reliable cashflow.

Concerns Raised by Small Business Owners

Small business owners who sell through Amazon have expressed their frustration and concern over the sudden policy change. Many feel that they were given inadequate notice to prepare for the financial impact it would have on their operations.

Libby Pearson, a long-time seller on Amazon’s marketplace, has been vocal about the challenges this policy change presents. She stated that small business owners are being forced into “devastating situations financially” and are unable to meet their financial obligations, such as paying wages, bills, suppliers, and even HMRC.

The Small Business Commissioner in the UK, Liz Barclay, has also received numerous complaints from Amazon sellers. One seller shared that they are currently owed £10,000 and expect that amount to increase to £25,000 before receiving any cashflow. This lack of access to funds puts their business at risk as they have no other income apart from selling on Amazon.

Potential Reasons for the Policy Change

According to Dan Romanoff, an equity analyst at investment management group Morningstar, Amazon’s decision to change the payment policy may be driven by the desire to simplify administrative processes, protect against fraud, and allow for returns. The extended delay in releasing funds could help ensure that sellers have sufficient funds to cover any financial obligations that may arise.

Romanoff also highlighted that Amazon may accrue interest on the held funds, although he does not anticipate a substantial change in Amazon’s income from interest as a result of this policy change. However, small businesses argue that the interest earned by Amazon does not compensate for the negative impact on their operations and cashflow.

Calls for Government Intervention

The issue has caught the attention of the UK government, with the Small Business Commissioner expressing concern about the widespread impact on domestic sellers. Liz Barclay has been in contact with Amazon sellers and is actively working to address the issue. The commissioner acknowledges the importance of cashflow for small businesses and the potential harm caused by disruptions in the payment process.

In response to the concerns raised, the affected sellers have started writing to their Members of Parliament (MPs) to protest against the policy change. They believe that a three-month notice period should have been given for such a significant alteration, allowing businesses to make necessary adjustments and find alternative solutions.

Amazon’s Response

Amazon has defended its decision, stating that the policy change was introduced in August 2016, and over 85% of sellers in Europe will not be affected by it. The company claims that the change is aimed at standardizing reserve policies for European sellers, ensuring they have sufficient funds to cover financial obligations like product returns or customer claims.

Amazon also emphasized that affected sellers were notified three months in advance to help them prepare for the change. However, sellers argue that the notice period was insufficient, particularly considering the potential impact on their businesses and financial stability.

Conclusion

The extended wait time for the release of sale proceeds by Amazon has sparked concerns among small businesses in the UK and Europe. Sellers fear that the delay in accessing funds may lead to cashflow disruptions, hampering their ability to meet financial obligations and potentially forcing them to go out of business. This policy change follows similar controversies faced by other online marketplaces, highlighting the importance of reliable cashflow for small businesses. As sellers voice their concerns and call for government intervention, the impact of this decision on the small business community remains to be seen.

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