How does Amazon’s seller payments system work – from order to money in the bank
When it comes to payments from marketplaces to Third-Party Sellers there are a few terms that can help understand the seller payment system with most marketplaces such as Amazon, Flipkart, Snapdeal, and Paytm. To reduce confusion in minor differences this is with respect to Amazon’s seller payments system.
What are payment ‘Settlements’
First up this it is important to know what is a “Settlement“. A settlement is the process initialized when Amazon triggers the payment process for a seller. This happens twice per week. The specific two days could differ from seller to seller.
What are the types of orders in a Settlement
- Successful Orders: All the orders successfully delivered up to this point are included in the settlement. This is irrespective of the due date when order came in. Hence, a settlement could have orders that are 3-4 days old or could be 10-15 days old or even include a delayed article that was lost in transit that took 15+ days. In essence, Amazon seller payment system processes the payment for goods received and accepted by the customer.
- Returned Orders: The settlement also contains orders that are returned. As mentioned above the article must be accepted by the customer. In some cases, there could be a Rs 7,000 order, where the seller was paid Rs 5,000 by Amazon in settlement #1, but then the customer returned it a few days after the settlement. Amazon then might reverse the Rs 5,000 payment in settlement #2 or #3.
What are the deductions in a settlement
Lastly, it is important to understand deductions and on the basis of which they occur.
Let’s stick to the example of a Rs 7,000 order, Amazon would deduct:
- Sales Commission Fee which could range from 5% to 20%
- FBA Pick Pack Fee
- FBA Weight Handling Charges
- Closing Fee
- Shipping Fee (If Amazon provided, Eg. EasyShip)
These numbers change based on the marketplace. The deductions include a tax component. For this purpose we assume that the seller receives a sum of Rs 5,000 or so after all the deductions.
The actual percentage of deductions made to the original selling price varies from category to category. This is because shipping charges on a Rs 2,900 dress is roughly Rs 350 or 12.5%. On the other hand, a Rs 7,000 trimmer, it’s just 5% which again amounts to just Rs 350.
In our experience, here is what sellers should expect their deductions to be for these popular categories (broad numbers), by keeping these in mind seller have a clearer picture of what the approximate deductions will be:
- Consumer Electronics, Smartphones, Cameras, Laptops etc. – 20-22%
- Fashion – 40-45%
- Beauty – 30-35%
- Toys & Games – 30-35%
- Home, Garden, Kitchen – 30-35%
- Furniture – 20-25%
- Appliances – 20-22%
If an order is returned, a seller might see some deductions NOT being reversed. For example: FBA (Fulfilled by Amazon) pick pack fee may not get reversed. A seller might have cases where a Rs.7,000 order is returned and he has a net deduction of Rs.350 on it. This is a clear loss to the seller. If the item gets damaged in transit, the loss is greater.
How long does the Amazon Seller Payment System process take?
As mentioned above, the amount of time is directly proportional to the time it takes the order to get in the hands of the customer, sellers overall performance in terms of ODR (Order Defect Rate) and Customer Ratings. Upon delivery the process is initialized and the payment is received during the next designated day of the week. EasyShip orders are usually settled within 7 days from delivery.
From experience, we usually advise sellers not to worry too much about WHEN the order will get paid. Amazon systems are strong and reliable, they WILL get paid eventually. We provide a visual dashboard which allows the seller to see all his orders of a month and which ones are paid or not.
FBA (Fulfilled by Amazon) orders will usually get paid fastest, because they will get in the hands of the customers the fastest. This is attributed to the items being stored in Amazon’s own inventory/warehouse resulting in a quicker dispatch and delivery. Payment for FBA orders can be settled as quick as 2 days from order date! That’s one strong reason to use the FBA service.
Is there a different process for FBA (Fulfilled by Amazon), FBM (Fulfilled by Merchant), Seller-Fulfilled Prime and other systems?
- When it comes to the processes, they are not different at all, however, the results might vary slightly. FBA will get paid fastest, this is simply because for an added fee Amazon takes the onus upon themselves to store, dispatch, and deliver the merchant’s goods. Next would be seller-fulfilled Prime where Amazon manages shipping, while the product remains in the merchants inventory/warehouse. Finally, the slowest is FBM as the merchant takes responsibility for the storage, dispatch and delivery of the goods through their own network. This could result in a delay of delivery and thus translate to a delay in seller payment.
- These systems impact the level of deductions. Mainly due to the fact that Amazon provides a seller numerous services which they will charge for by way of deductions.
- Also, return rate will impact how much you earn. Maintaining inventory can be troublesome especially during sale days, which can be common in seller warehouses. Even otherwise, with FBA, the “wrong-product-shipped” number of cases will be minimal.
How do 3rd-Party Tools (non-Amazon) help sellers get their money?
3rd-party tools are usually more specialised in what they offer since they offer a subset of all that Amazon’s platform offers and thus are often better in consuming that subset of information. Here are some of the benefits that Browntape brings to the table:
- Browntape provides a quick-to-absorb visual dashboard of the payment settlements from Amazon over the last few trailing days, showing how many orders have been settled, how many are pending and how many have had a negative impact on payments (usually returns).
- We offer downloadable order-wise and remittance-wise csv/excel reports in the Reports section where the details of all the remittances with order-level deductions and remitted amount are visible and ready to be imported in your other systems.
- On Amazon’s system, many times replacement & returned orders so now show the complete information on the order details page. On Browntape, complete order details along with line-item level remittance info is all available on the same page in an easy to consume manner.
- Our integrated software helps sellers calculate SKU-wise profitability to help them sharpen their pricing. This is expanded upon in the next section.
- Simplifying accounts is another benefit. Order-wise payment and tax reports help import that information directly into an accounting system to get all the data in that system.
What else is important for Marketplace Sellers to Know? What are some mistakes to avoid?
Watch your SKU-wise profitability
Every month, the seller should look at the average deduction percentage of each SKU along with their cost price. The deductions for 2 orders of the same SKU could vary because of:
- Shipping distance
- Order returned or not.
Over a period of a month, the seller can understand the average deductions and hence the profitability of selling each SKU. This can influence the pricing decisions for certain SKUs.
We have also seen sellers set up a different packing process for certain SKUs to reduce the return rate and increase profit. It can impact the online selling strategy of a merchant/seller provide opportunity to reduce overheads/cost.
If Amazon is handling your shipping and the reason for product return is “breakage”, the seller could raise a claim with Amazon and recover a percentage of the selling price. However, claims need to be raised within 5 days of the products return. We have seen sellers setup a process of photographing all their returns and submitting claims. This has helped their profitability and saved time when amidst busy schedules.
WHEN the payment comes through is not of grave importance with Amazon. Sellers should shift their focus to HOW MUCH profit they are currently making per sale and how they can maximize/optimize that.