Must-Have Capabilities in Your Digital Commerce Accounting Tech Stack
Accuracy in automation is one of the biggest challenges that your digital commerce clients now face. A recent survey revealed that more than 75% of mid-size businesses are forced to manage digital commerce tasks manually to adjust payment data, correct sales costs, taxes and other items - and run reports across different platforms.
The time it takes to make adjustments month-on-month is currently adding up to 5-7 days per month, equating to a staggering $30,000 staff hours per year, per company.
To overcome this issue and ensure the general ledger is accurate, accountants and bookkeepers need to implement a tech stack that makes it easy to:
1. Account for merchant fees
Shopify and other e-commerce platforms each take a small cut of each sale before depositing the net amount in a bank account. As you know, the correct way to account for this is to note the gross sale, and record the difference between that and the final deposit as “merchant fees”. As these merchant fees are often not refundable in the case of returns, these fees then need to be accounted for as a “loss”. Accounting for merchants fees can be a big overhead for firms without the right tool set to automate the process.
2. Accurately track refunds, exchanges and inventory
Where a client uses a combination of e-commerce platforms and third-party payment processing tools, recording refunds and exchanges can get complicated and could result in multiple records in their books. Moreover, e-commerce platforms often have inventory tracking within the software, which is great if it's the only piece of software a client uses. However, if a client sells in multiple places online, their inventory is likely to be tracked in different ways by different pieces of software. So implementing the capability to track inventory in one central place is vital, and ideally this source of the truth should be used to create an accurate record of sales, returns, and restocks. This is worth bearing in mind as not all pre-accounting solutions track inventory as it requires accrual-basis bookkeeping.
3. Track cash flow from alternative sales
When a client offers a range of payment types in addition to credit, such as buy now pay later plans, cash, check, and gift cards - the solution needs to handle these sales, as these are more complicated to manage from a bookkeeping perspective. For example, in the case of gift cards, the cash inflow needs to be recognized as unearned revenue, until the gift card is redeemed and goods have been exchanged.
4. Accurately process overseas fees in multiple currencies
In order to reconcile sales to foreign countries, solutions need to record the gross sale and merchant fees in the foreign country and the exact conversion rate used by the e-commerce platform in order to accurately account for the sale. As you know, any discrepancies between this record and the final deposit in the client account needs to be recorded as a gain or loss of foreign exchange. Solutions that automate this process accurately, are now vital.
5. Simplify shipping fee complexities
If a client’s e-commerce software offers shipping services, this feature can also cause reconciliation issues. Often clients will offer a flat rate shipping fee whereas the purchasing price from the logistics provider is likely to be variable and the e-commerce platform is likely to charge for handling the shipping charge/fulfilment fee. You can of course manage these transactions in one COGS shipping account where all income and payments are centralized. Alternatively it’s a case of splitting into two accounts for Income and Expenses, and comparing the differences. Automating this time consuming process is increasingly important for accountants and bookkeepers that service clients that do business in international marketplaces.
6. Manage tax liabilities and compliance
Whilst some e-commerce platforms will collect tax at the point of sale and remit it to the relevant tax authorities, the majority of platforms only collect sales tax from customers. This means that paying the right amount of tax to the right tax authority needs to be managed as a separate process by different software. Implementing a solution to automate this entire process, accurately, and demonstrate compliance helps to ease the legal burden on accounting practices.
Aside from providing these dedicated functionality and features which help to overcome specific digital commerce challenges, your tech stack also needs five core competencies to enable:
- Scalable real-time data retrieval - to consolidate and standardize accurate transaction information into sales, expenses, fees, refunds and reimbursements.
- Seamless integrations - to bridge data and process gaps between all the various platforms to enable accurate reconciliations, liabilities tracking, assets tracking, sales trends, expenses and COGS etc.
- Intelligent, agile workflow - to adapt to your firm’s processes as they evolve, service providers as they iterate, and clients as they add more e-commerce and payments platforms and applications that need to be tracked.
- Accurate, simplified reporting - to provide access, visibility, and insights into customers, payment methods, shipping fees, taxes, deferred revenue, SKUs, and much, much more.
- Secure data recovery - to keep your client data safe, secure and backed-up on secure networks with built-in bank-level encryption, and your firm in complete control over access, user permissions, and storage.
Another consideration: technology providers that can partner for the long-haul
Another key consideration when deploying and embedding new technology into your digital accounting stack, is whether it comes complete with tailored onboarding to support integration, and to ensure you and your team get off to a positive start. Market-leading tools are often the most intuitive to set up (hence why so many practices have already adopted them) and come complete with in-product prompts and guides to help you connect and make the most of your data and workflow automation.
Software providers that offer on-demand or live training for clients, new team members and existing users that need a refresher, or want to get better insights from your data, will be an asset to your practice as it grows and evolves. Some providers even cultivate active user communities that allow you to connect and network with your peers who are also invested in sharing smart accounting practices.
To learn more about the must-have capabilities every digital commerce accounting stack needs, watch our on demand webinar here.
