When businesses struggle, most of the time it isn’t due to low sales or inefficient management, it’s due to cash flow problems.
In fact, it’s when businesses are growing rapidly that they are most at risk: bills get bigger before sales do, and need to be paid before the cash starts rolling in. Stellar sales have actually been the downfall of many companies.
Amazon sellers are not immune to cash flow problems. Their sales proceeds are held for two weeks before being paid out, so stocks will dwindle and payment deadlines draw closer before they see a single cent. Businesses selling to Amazon as vendors have it worse, with typical payment terms of 30, 60 or 90 days after invoicing.
Payability is one business helping Amazon sellers and vendors tackle their cash flow problems. They take the age-old practice of “factoring” and offer it online to Amazon sellers at competitive rates. Here’s how it works and why you might want to use it.
Note: Payability is only available to Amazon sellers and vendors in the US.
What’s the problem that Amazon sellers and vendors face?
Amazon initiates payment to marketplace sellers every 14 days. Then it typically takes 2-4 days for the payment to clear through the banking system.
This isn’t an issue for a merchant whose sales are flat. But for a seller who is growing rapidly, getting paid only once every two weeks can be a big problem. They’ll want to quickly reinvest the $10,000 they’ve made this week so they can make an additional $20,000 in the coming weeks. But they can’t, because Amazon sits on that $10,000. The best case scenario is that their growth is held back. The worst case scenario is that they run out of stock – losing the buy box, sales velocity, brand reputation and of course sales revenue.
For vendors the problem is even greater, as they have to wait 30, 60 or even 90 days to receive payment from Amazon. They will often have to pay their own suppliers before they have sold their products. As with marketplace sellers, it’s especially difficult when growing rapidly, as payments to suppliers will increase before sales to customers. The bigger this gap, the more cash you have to find to cover costs until the payout is made. It’s the kind of problem that keeps business owners awake at night; worrying about stock-outs and lost sales.
Where does Payability come in?
Payability eases the cash flow problems of Amazon sellers and vendors, providing a “factoring” service to help them get their funds much more quickly.
With Payability, Amazon marketplace sellers get paid daily, instead of every 14 days. Each day, Payability looks at the sales you made the day before and pays out 80% of that amount. The remaining 20% is sent every two weeks, less Payability’s fee, when they receive your payout from Amazon. So, if you made $10,000 in sales yesterday, today you would be sent $8,000. Then, in two weeks time, you would be sent the remaining $2,000, less their fee.
Vendors can also get their funds much more quickly, being paid every week instead of after 30, 60 or 90 days. Payability looks at the volume of goods you had approved for purchase by Amazon the week before, and pays out 80% of that amount in the current week. When they receive the full payment from Amazon, they send the remaining 20% (less their fee).
Not only does Payability dramatically reduce the lead time for payments, they also use a faster banking system. Amazon uses a regular ACH funds transfer, typically taking 2-4 days, while Payability uses Same Day ACH, meaning that transfers initiated before noon Eastern time will be received in the seller’s bank account by 5pm Eastern time the same day.
What the heck is factoring?
Factoring is a financial service for businesses, and has been around for thousands of years. It’s where a business “sells” an invoice to a third party at a discounted rate. Imagine that I have an invoice saying I’m owed $100 by another business. They will pay me in two weeks, but I want to get the funds now to buy more stock.
Instead of waiting for two weeks, I take the invoice to a third party (a “factor”) and sell it to them for $80. They buy it and give me that $80 straight away. In two weeks’ time, they receive the full $100 directly from the other business and return $10 to me.
The factor’s profit is $10, but they were out of pocket for two weeks and took on the risk of non-payment. I don’t mind that they make a gain on the transaction, as it means I have funds available immediately and I don’t have to wait before I can buy more stock.
This is exactly how Payability works, except for a lower fee. For marketplace sellers, the amount you are due from Amazon every two weeks is effectively an “invoice” which you sell to Payability. They take a fee and in return make your Amazon payout available to you much more quickly.
The innovation in this service is taking the age-old practice of factoring and making it available to Amazon sellers and vendors.
How much does it cost?
For marketplace sellers, Payability takes a 2% cut from the full amount received from Amazon. Payability pays out 80% of sales daily, then you will see the fee taken from the 20% balancing payment made in two weeks. If you made $20,000 in sales yesterday you would receive a $16,000 (80%) payment today, then the remaining $4,000 in two weeks, less a $400 fee (2% of $20,000).
For vendors, the fee depends on whether you get paid every 30, 60 or 90 days. Payability looks at the amount of goods you had approved for purchase by Amazon the previous week, and charges 0.5% for every week that passes until the full payment is received.
So, as a vendor, if you had $10,000 of goods approved for purchase by Amazon last week, and receive payment every 30 days, you would be charged three weeks of fees at 0.5%, which is a total of $150. This will be higher for vendors on 60 and 90 day plans.
How can a Payability Card reduce the fees?
Payability provides sellers with the ability to offset their fees by using a Payability Card, a pre-funded virtual credit card with 2% cashback on purchases.
When Payability receives funds from Amazon, you can choose to let your balance build up, transfer it to your bank account, or transfer it to your Payability Card. The card offers 2% cashback when you use it to buy goods, so you can effectively reduce the 2% fee Payability charges marketplace sellers.
The card can be used to buy goods online, and it has all the features of a normal credit card, except that it’s virtual and the details stay on the dashboard of your Payability account. You won’t a receive physical copy of the card, or be able to use it in person at a brick-and-mortar store.
How do sellers sign up?
You sign up via the Payability website. After creating an account, you’ll be asked to enter your personal and business information, including your business’ legal entity and tax ID. Payability then generates a contract using that legal entity, which is made up of a factoring agreement and a validity agreement. This is to ensure you are checking that your stock is authentic, and you adhere to Amazon’s terms of service.
You then need to sign the contract, which can be done online using DocuSign. You will also need to upload a form of photo identification and proof of your business address, such as a utility bill or the first page of a bank statement. This is required by the US government to adhere to the KYC (know your customer) regulations.
Once you’ve been verified, you’ll need to access Seller Central and invite Payability to your account as an additional user. When Payability receives the invitation, they will set their password and contact you to let you know they’ve completed that step.
You now need to set permissions for which parts of your Seller Central account that Payability can access. They need permission to view, or view and edit, all sections of your account.
The final step is to enter the banking information that Payability provides into your Amazon account.
It may seem like a lot of steps, but the whole process can be done in little more than ten minutes.
Why do they need “view and edit” access?
Amazon doesn’t allow sellers to give third parties “view only” access to every area of Seller Central – some parts only allow no access at all or “view and edit”. In these cases, Payability asks for “view and edit” access. They will never edit any of your information; it’s just a limitation of Seller Central’s user permissions system.
Users are further protected by the contract they sign when creating a Payability account. As part of this legally binding agreement, Payability agrees that they will not edit any information in your Amazon account.
After signing up, how long will the first payment take?
Typically, a seller is ready to receive payments within just one day. So, if you sign up today, you would be able to get your first payment tomorrow.
It can sometimes be done even faster, with customers ready to receive payments within a couple of hours. It largely depends on how quickly you can complete and sign the necessary documentation, and how quickly Payability’s underwriters review your application.
So not only does Payability provide the quickest way to get your Amazon payouts, you can sign up and get your first payment in only 24 hours.
This post was sponsored by Payability.