Marketplace eCommerce businesses are growing rapidly, and Finance as a Service has never been more needed. In light of the COVID-19 pandemic, Finance as a Service can help marketplace eCommerce companies tremendously. However, there are pros and cons to outsourcing accounting and finance function risks when eCommerce businesses look to scale their operations.
This article will explore some of the benefits that Finance as a Service provides to marketplace eCommerce businesses to grow their business without risking finances or scaling up too quickly.
The Effects of COVID-19 Pandemic On The eCommerce Industry
The Pandemic has had an extensive impact on supply chains. While some sectors have weathered the storm, many eCommerce companies are finding themselves in dire straits. The reason for this is that many of these eCommerce businesses rely entirely on third-party logistics providers. These platforms ensure that goods can get in and out of warehouses.
On the other hand, eCommerce businesses have also seen a rise in digitalization and the proliferation of remote work. This has created new opportunities to provide services such as digital payments, credit, and insurance at the point of sale by non-financial companies. Before COVID-19, this was unheard of due to concerns about online purchases with people.
Marketplace eCommerce businesses stand to benefit from this new development because they will be able to offer more services and increase sales and revenue numbers. Since eCommerce platforms offer customers digital payment, credit, and insurance for point of sale transactions post pandemic, it is essential to monitor the growing demand in eCommerce.
Marketplace eCommerce companies can increase their success by outsourcing accounting functions, but at the same time, they face increased risk when moving to a larger scale.
What Is Finance as a Service?
In light of the COVID-19 pandemic and its effects on supply chains and the eCommerce sector, it is evident that Finance as a Service has never been more important. That said, there are both pros and cons when eCommerce companies outsource accounting as well as finance function risks when scaling an eCommerce business.
Finance as a Service can help marketplace eCommerce businesses tremendously. Finance as a Service, also known as FaaS, is an accounting and finance function that offers personalized services and support for companies. This service provides financial management to smaller-sized companies to facilitate growth while allowing their larger competitors (such as Amazon) to focus on their core competencies.
Finance as a Service companies can provide guidance and assistance in cash flow management, financial forecasting, budgeting, accounting processes for payrolls, taxes, compliance audits (such as Sarbanes-Oxley), revenue recognition for mergers & acquisitions, or initial public offerings (IPO).
Outsourcing financial and accounting services can help lower your company costs, freeing up resources that may be dedicated to irrelevant processes such as hiring and training an accountant.
Businesses can outsource accounting while gaining a competitive edge without breaking the bank. Marketplace sellers no longer need an expensive finance department to stay competitive with these services at points of sale.
Unlike a more traditional approach to outsourcing the accounting function, FaaS takes it further by enabling standardized procedures, cloud computing for enhanced agility in meeting partner needs, and improved financial dashboards and reporting capabilities for regulatory concerns.
What Are The Finance Function Risks When Scaling Your eCommerce Company?
When many marketplace eCommerce companies outsource their finance function, they leave themselves exposed to finance function risks such as poor integration of technology or a lack of visibility. To avoid these pitfalls and others, businesses should look into their existing processes for areas that require improvement. Additionally, they need to take the necessary steps to minimize the risk associated with their finance function. Below are some of the risks associated with scaling an eCommerce business.
Inadequate Finance Technology Integration
Many eCommerce companies focus on tasks like scaling an eCommerce website or integrating with marketplaces and payment gateways. However, these initiatives can distract from the need to manage finance function risks during this time of rapid growth.
Instead of worrying about whether they are concentrating on the right things, eCommerce companies should use technology to integrate their business with finance and accounting functions. They also should be quick to adopt technologies that can help them quickly upload and access information.
In a fast-growth stage, companies might face the risk of errors in financial information and a lack of integrated systems. This highlights compliance issues when filing tax returns and preparing financial statements. The finance function can struggle to provide the insights that management needs, such as accurate gross profit margin, SKU profitability, and return on advertising spend. This is because they face various challenges, including time-consuming reconciliations between sales and bank receipts.
Inputting Operational Transactions into the Accounting System
The finance function can struggle to get financial transactions processed in a timely manner, especially during peak periods for eCommerce businesses such as Black Friday or Christmas. At this time, companies are under pressure to fulfill orders and meet deadlines for reporting, but it may also cause problems with refunds due to lost shipments.
Not having access to real-time financial data will impact how your organization performs during peak periods. Furthermore, the finance function cannot complete their tasks in a timely manner which affects your organization’s reporting capabilities.
Poor Terms of Contract Visibility
The finance function can struggle with a lack of visibility into the terms of contracts if eCommerce companies have not clearly outlined which payment means they offer. This makes it difficult for them to provide accurate cash forecasts and communicate this information to management if their performance is below expectations.
Marketplace eCommerce companies have limited visibility into their payment terms, which poses a risk to credit and cash flow management. Late payments or penalties could be avoided if the finance function was more aware of its obligations during periods of peak activity when companies are under pressure for financial reporting while attempting to refund orders and adjust lost shipments.
Correlating Spend Statistics With Revenue Statistics
The finance function struggles with correlating revenue statistics to spending patterns, especially during peak periods. This is because they struggle to correlate data due to poor integration between their sales and marketing systems (SMS) and back-office functions, including Point of Sales (POS), inventory management system, eCommerce store, and accounting applications.
Since eCommerce companies struggle to correlate data which interferes with their ability to provide accurate cash forecasts, they have difficulty communicating this information to company managers if performance is below expectations.
For eCommerce business owners looking to scale operations, it’s crucial to understand how many employees they need for peak periods. If too few or too many are employed during those times, it can impact cash flow due to additional costs such as overtime payments and potential penalties for late deliveries.
There are several drawbacks to expanding a company’s finance department without understanding the underlying mechanisms necessary for their success. This is why scaling eCommerce operations benefit from using Finance as a Service.
The Pros and Cons of Outsourcing eCommerce Accounting Functions
Many turn to outsourcing their accounting and bookkeeping to avoid the finance function risks of scaling one’s eCommerce organization. However, there are pros and cons when it comes to making this decision.
On the one hand, outsourcing accounting can free up companies to focus on other core areas of their business. This can be a great advantage when eCommerce businesses expand quickly or enter new markets. When a business outsources core functionalities like accounting, the organization can focus on its own goals and take advantage of the benefits such as more sales.
Companies also need to consider the cost of specialized tools and training for new hires when outsourcing accounting tasks. Meanwhile, insurance packages might also be expensive. But in general, outsourcing accounting is beneficial because it gives eCommerce companies more time to focus on their unique selling point rather than core competencies within a company that contributes to growth.
On the other hand, however, outsourcing accounting will also mean that you’ll be losing some control over certain aspects of your organization. Business owners who outsource accounting to an external company can sometimes risk losing access to their financial information.
Additionally, some businesses struggle with communicating with an outsourced company resulting in slow and unreliable performance. Marketplace eCommerce companies typically use outsourced accounting services to save costs and ensure they have access to crucial resources when needed. However, external bookkeeping services may charge per hour or month. Therefore, it is essential that marketplace companies carefully consider potential communication challenges outsourcing your accounting process might create and the need for an expert partner whenever it scales its operations.
This is why many business owners still use in-house staff for finance and bookkeeping. eCommerce businesses can handle complex financial transactions, so it’s more convenient to have a specialized bookkeeper or CFO who understands business goals and objectives.
Nevertheless, since the marketplace eCommerce business must provide high-quality service, accounting firms experience even greater pressure by being held to the highest professional standards.
Focusing on growing your sales, you must prioritize finding a good accounting partner. An eCommerce-focused group that can stay current with changing laws and focuses on their specific industry is best for peace of mind. Furthermore, an accountant who has experience with companies in the same industry as yours will be able to provide better support.
What eCommerce Companies Get From Finance as a Service?
Finance as a Service brings Finance, Accounting, and Taxation together under one umbrella. Finance is the broadest division of these three core functions, including assessing financial health, cash flow management, and advising on capital structure decisions regarding debt vs. equity investments. That said, there are several benefits for eCommerce companies who outsource Finance as a Service.
Get Access To State-of-the-Art Technology and Experts
One of the key benefits to Finance as a Service is gaining access to state-of-the-art technology. The right Finance as a Service provider has an in-house finance team and CFOs who use these high-quality tools that give eCommerce companies unparalleled insight into their business. This helps them make more informed decisions on where they should focus their efforts.
Finance as a Service providers have access to the best technology that enhances their internal team’s effectiveness and gives eCommerce companies an edge over competitors who don’t outsource Finance as a Service.
In addition, Finance as a Service is another way for marketplace eCommerce companies to add value by providing expertise with financial analysis, which can be difficult when scaling an eCommerce business. Finance as a Service gives marketplace eCommerce companies access to expertise in finance and accounting which can provide them with the resources they need when scaling their company.
Finance as a Service allows marketplace eCommerce companies to focus on their core business rather than having to fend for themselves. This is especially important when it comes to bookkeeping and accounting, which can be complicated if you don’t have extensive knowledge of these functions.
eCommerce businesses are not fully equipped with the proper tools and knowledge to handle Finance as a Service. Finance as a Service helps marketplaces minimize errors and fraud that could potentially lead to more significant problems.
Finance as a service also allows marketplace eCommerce companies who outsource accounting or bookkeeping to manage better their cash flow, which is vital in running an effective business.
Detecting errors and resolving them manually can be a very time-consuming and expensive process for small businesses working with multiple systems that are not integrated. This is common among companies who perform finance processes using various disconnected sources instead of through an automated service. These businesses will frequently pull information from different sources and then transfer the data onto spreadsheets. On the other hand, since FaaS is automated and has multiple layers of review built into their processes, it detects most errors and discrepancies on time.
Improved Financial Accuracy
Finance as a Service helps eCommerce companies that outsource Finance to provide greater financial accuracy.
A common issue small and medium enterprises face is having their finance function being outsourced or in-sourced. This can cause errors due to a lack of flexibility, capability, knowledge, and expertise in finance functions. Additionally, processes that are not automated can create high errors due to data entry and cumbersome reconciliations. Finance as a Service provides automation that eliminates these issues, allowing for greater financial accuracy for eCommerce companies who outsource Finance.
Finance as a Service also ensures that the numbers provided by the finance function are accurate since there is generally an automated process in place when it comes to Finance as a Service.
With integrated financial management systems, your team can focus on doing productive and profitable work instead of spending time stuck filling out paperwork. A platform for managed finance helps monitor the employees’ progress.
Actionable Reports that Assist In Decision-Making
Finance as a Service provides a finance function with actionable reports that can assist in decision-making. eCommerce companies that outsource Finance generally receive financial statements and other accounting data such as cost of goods sold, accounts payable, receivable balances, etc. However, these numbers usually don’t provide enough information to make informed business decisions due to the lack of data.
Finance as a Service provides marketplace eCommerce businesses with actionable reports that provide them the information they need to make informed business decisions such as cash flow forecasts, inventory and asset utilization trends, etc.
Many eCommerce companies lack central accounting, which makes it cumbersome to manage the company’s finances in a way that can monitor customer profitability and evaluate service performance. By outsourcing finance, however, more opportunities like tracking Customer Acquisition Costs (CAC) become available, and investors who are interested in knowing more about the company’s financial health can be shown a better picture of its
This is especially true for business owners and CEOs who do not have a finance background, as they cannot make effective decisions based on all the data at their disposal. Without access to financial reporting from within their businesses, these business owners leave themselves open to making uninformed decisions that could be harmful in the long run.
Saving Time and Resources
Outsourcing Finance as a Service allows marketplace eCommerce businesses to save time and resources. Doing finance tasks manually can be very time-consuming for small business owners who are busy running their companies day in and out instead of focusing on the financial details. This is especially true for payment processing, which involves manual data entry from invoices and receipts.
Finance as a Service, on the other hand, reduces manual data entry through an automated payment process that can be done in bulk, so you don’t have to spend time manually inputting these transactions.
FaaS also allows for faster cash flow since it has processes such as automatic reconciliation, which eliminates most discrepancies between financial reports and the actual cash position. Finance as a Service is also flexible regarding billing frequency, allowing for monthly or weekly invoicing depending on your preference and budget.
Finance as a Service can be integrated with back-office systems. Finance tasks such as invoice processing are done automatically without any manual data entry errors, which results in greater efficiency. Finance as a Service saves time and resources that can be invested in growing your business instead of doing tasks such as invoice processing, which is tedious for small companies who lack the financial know-how or have little time to do it themselves.
Finance functions within marketplace eCommerce companies are usually understaffed, leaving them unable to fulfill their roles properly. Finance as a Service, on the other hand, provides finance functions with access to more resources which allows them to focus their efforts on building long-term relationships instead of manual invoice processing and data entry that is prone to errors.
Outsourcing Finance as a Service allows marketplace eCommerce businesses to concentrate on their core functions such as sales and marketing while having easier access to information that helps them make informed decisions. Finance as a Service also saves time, resources, and money that would otherwise be spent doing finance tasks manually, which can have adverse effects instead of focusing on growing the business.
Finance as a Service is best suited for marketplace eCommerce companies that lack central accounting and finance staff, allowing them to scale their businesses with more information at their disposal while expanding access to resources needed.
They would benefit greatly from outsourcing their finance and accounting to Consero. We don’t just provide financial software; we develop a dashboard that displays the information you need for making better business decisions.
SIMPL is one of our financial services that allow eCommerce companies to communicate their financial health to execs. This particular module helps businesses to track their finances without adding complexity as they grow.