Having a smoothly managed cash flow is essential to keeping your business running successfully.
If you’ve decided to source product or sell in international markets, then you’ve got added layers of complexity to deal with when it comes to managing that cash flow. You might have suppliers in one country, buyers in several others, while you sit somewhere else entirely.
Many sellers have faced challenging scenarios, such as where cash flows get held up, supplies of new inventory then get held back, and they face a stock out and the associated fallout.
There are other payment scenarios that can prove challenging for your business to handle too, particularly within that scene of cross-border operations. Let’s break down a few of those challenges and look at how you can manage cash flow internationally for your Amazon business:
Smart cash flow management
First of all, whether you’re dealing with international payments or not, positioning your business so that you’re managing cash flow smartly is an early challenge all businesses should spend some time figuring out.
For example, let’s say you’re wanting to expand your operations, perhaps by adding new product lines, or by taking the ones you have into international markets. Either way, this sort of move requires capital.
Take into consideration, how will you fund your growth? How can you set up cash flow systems so that you have something available “for emergencies”? A huge number of Amazon sellers begin their businesses by using credit cards or money they had saved up, which is fine, but how do you manage that point where you know you need to order more stock, but you’re still waiting for the proceeds from sales?
Before tackling any of the payment issues that international trade presents, having a good base setup is one of your best ways to go on the offensive. This is where things like negotiating payment options with suppliers or accessing different funding methods can be good tools to have in your arsenal. While you’re still relatively new, you may not have many options available to you, but don’t neglect looking into them once you have proven results to show. Cash flow availability is often a key difference among competitors, allowing one to scale while the other still operates month by month.
With cash flow taken care of, there are still potential challenges you can face in managing your money across international borders:
Getting paid when you sell in foreign markets
Are you setting up to sell on Amazon.co.uk, Amazon.de or any of the other foreign markets Amazon gives you access to? Perhaps while you’re at it, you’re also entering other marketplaces in those countries. If so, you probably realize that, while not always necessary, having a bank account in local currency in the foreign country can altogether make life easier.
Just as an example, if you are to sell on Amazon.co.uk, you will have obligations with regard to VAT (Value Added Tax) collection and payment. Non-resident businesses are required to have a local bank account, or if you don’t, more paperwork gets added to the VAT process.
Opening a local bank account may sound like a simple step, but if you look into UK banking laws, it’s really not that easy. There are a lot of forms to fill out and things to provide to prove your identification which, if you’re not there in person, can be challenging. Some banks in foreign countries provide a service where they can get your UK bank account opened through them, however, this is often associated with steep fees.
The short of it is, you need a reliable way to receive and pay out money, preferably in a way that keeps the “paper trail” simple for you. If you’re converting back and forth between currencies, then trying to work out things like your bottom line numbers, or how much you owe in VAT, things can start to get quite complicated.
In the spirit of keeping these things simple and allowing you to focus more energy on growing your business, you may want to look into a global payment service which provides you with local holding accounts, allowing you to deal in local currency. Payoneer is one such service which has been well-received by Amazon sellers.
Sending money overseas
If you’re like many Amazon sellers that source their products from overseas, you’re going to have to deal with making payments into foreign bank accounts. Commonly, suppliers aren’t fond of using solutions like PayPal due to the percentage that is docked off their end as a fee. They want to receive as close as possible to their actual invoice amount.
Firstly, when it comes to choosing payment options, look closely at how fees are structured. Every payment solution has them, although some may build them in differently, such as by including them in the currency conversion rate. When you’re transferring large sums of money, sometimes a percentage figure that is charged as a fee can make all the difference between whether that option or a flat fee option is better.
Of course, you’re also concerned with the expedient and safe transfer of your funds. You could choose to transfer via your bank, but you need to look into; 1) fees and exchange rates and 2) how quickly the transfer will get there. When banks send money via TT (telegraphic transfer) they send the funds through banks that they have a relationship with. What often happens is that your bank might not have a direct relationship with the manufacturer’s bank in China (or wherever it is), so your payment gets sent through a series of intermediary banks until it reaches the correct account. Each intermediary bank can take fees for the transaction if they wish, and also, sometimes the payment takes a long time!
So we’re back to smooth availability of cash flow – you don’t want to be running out of stock because your payment to a supplier is stuck at some intermediary point.
What about credit cards? Well, this is another case where you should consider the fee percentage charged. Sometimes it really adds up for large orders. It may also be a case of personal preference and comfort with the payment option – many people do not like giving out credit card details if it can be avoided.
Other options to check out are the various payment services which have been set up specifically to help people move money more easily across the world (within the rules for the prevention of money laundering and terrorist funding). Usually they work by sending your money through their own bank accounts in the foreign country (such as how Transferwise works)
Again, look at the fee structure and how quickly they can get your payment into the overseas account. Secondly, you should look into their overall reputation for reliability. There are more services appearing on the scene all the time and you want to deal with one that is trustworthy and will take responsibility for the safe passage of your funds (or pay you back).
As a final note here, another potential cash flow challenge that sellers can face is dealing with paying the various sales or services taxes which may apply, depending on which market they’re selling in.
It’s one thing you need to do homework on before entering that market. Just remember that it is never usually as simple as setting up your account and starting to make sales. Know what the rules are for each jurisdiction, how taxes are calculated and when and how you’re expected to pay them. One of the worst things for your cash flow is to suddenly be surprised by a tax bill you had no idea was coming! Most countries will be set up so that it is easy to pay their revenue service via a local bank account, which can be one more reason to have access to one.
It’s exciting to be able to access markets across the world when you sell online, but it also means more management of cash flow and ensuring that you are able to send or receive funds at the right time and place.
Look into your options carefully – some will have fees that aren’t always obvious from the beginning. Aim for the right combination of cost-effective, expedient and reliable. Most of all, make sure you have a good “base” cash flow strategy, so that dealing with the unexpected doesn’t become a complete disaster.