Dissecting Amazon’s new ‘Pay by Invoice’ method

All retailers need to keep current with market demand and attitudes. This is true for ecommerce stores, small and large. Amazon continually updates its offers and its terms and conditions. Amazon sellers receive an email at least monthly with the details of a change, such as what is allowed in a picture, or the format of an upload file.

It is easy for me, as an Amazon seller, to ignore these emails if the subject line does not appear relevant to my business. Like many owners, I have to choose what to read and what to ignore. Sometimes, however, I miss important notices.

For example, a couple of months ago Amazon sent an email detailing a new payment method for businesses that purchase products from Amazon. The email said that only invited companies could participate, and only the very best would receive an invitation.

So I ignored the mail. I decided to wait for the inevitable, when Amazon rolled the scheme out to a wider audience. This was a mistake. I should have read the small print and discovered the details.

‘Pay by Invoice’

The new payment method is “Pay by Invoice.” It is an attempt to entice new customers that prefer to pay after receiving the goods. It is presumably based on the assumption that there are organizations — libraries, public bodies, larger companies — that do not let their staff pay in advance for an item. On the face of it, it seemed like a good idea.

The details, however, matter.

On closer inspection, I realized that Amazon said the payment method could be used on any order with any Amazon seller. That means me! Without seeking my agreement, Amazon had just stated that large customers could order from me and not pay in advance.

In the normal Amazon process, payments are credited to sellers’ accounts on the day the order ships. Sellers receive the money on the next settlement date, which could be as long as two weeks away.

With “Pay by Invoice,” however, the money does not get credited to the seller’s account until the customer pays Amazon. This can be up to 30 days after delivery. Indeed if the customer does not pay, the seller has to wait up to 45 days, roughly, before Amazon automatically credits the account. So in the worst-case scenario, the seller has to wait approximately 60 days to receive the money.

Meanwhile, the seller may have to pay sales tax (or, value-added tax in the U.K.). Moreover, Amazon has not addressed, to my knowledge, when it deducts its commission from the seller’s account. Hopefully, it will be when the payment is credited. What is certain is that the delay in settling the order will affect the seller’s cash flow.

It is likely that large organizations will take longer to pay. With so many Marketplace sellers operating on small margins, the gross revenue of one or two large monthly orders could exceed the profit for that period. Larger retailers can likely absorb this hiccup in cash flow. But small ones, caught unaware, may suffer.

This is why it is important to read all emails, especially from Amazon.

Certainly “Pay by Invoice” could help some sellers. But Amazon has not bothered to address potential problems, such as cash flow. Time will tell whether other, more insidious, issues arise.

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Some organizations seem to find new ways to delay payments and raise delivery problems. This is made worse for sellers, as Amazon provides just one official way for buyers to complain about an order: an A-Z claim. These claims can be devastating for sellers. (I’ve addressed A-Z claims in multiple posts, most recently at “Every Amazon A-Z claim is a failure in customer service.“)

In short, “Pay by Invoice” offers pros and cons to sellers. It can increase sales, but it can also harm cash flow. The only certainty is it will benefit Amazon.