The e-commerce giant’s recent announcement is likely to see small retailers struggle to maintain steady cashflow. As SMEs face increasingly long payment terms, invoice finance could offer a solution.

A couple of months ago, Amazon sent an email to its Marketplace sellers detailing a new payment method that would be made available for businesses purchasing products from Amazon.

The new payment method is ‘pay by invoice’, and it has now come into effect. It is aimed at customers who would prefer to purchase items and pay for those items at the end of their term, and is a payment option that the e-retailer has made available on any order with any Amazon Marketplace seller. However, according to their website, this option is only open to Approved Amazon Business customers and is available by invite only.

A change to payment terms

Normally payments are credited to a seller’s accounts on the day an order ships, and the seller will usually receive that money on the next settlement date, which could be up to two weeks away.

But under pay by invoice, the seller’s account is not credited until the customer pays Amazon, which can be up to 30 days after delivery.

In cases where the customer does not pay, Amazon will automatically credit the seller’s account – but this is after a wait of up to 45 days. It means that, in some situations, a seller could be waiting around 60 days to receive their money.

When you consider the seller will also have to pay VAT, and that their commission to Amazon still has to be deducted from their account, it’s clear that this new payment method could severely impact a seller’s cashflow.

While larger retailers might be able to navigate this challenge a little easier, many smaller retailers are likely to suffer.

An extra element of pressure

Maintaining working capital is essential when scaling, and rapid growth can put a huge amount of pressure on cashflow. As can having to wait to be paid for your goods and services, or finding that your invoices are suddenly subject to longer payment terms than you originally anticipated.

To cover times like these and bridge the gap between invoicing and receiving payment, it could be worth exploring sources of alternative finance. For example invoice finance, where you receive an advance on the invoices that are owed to you. This means your business can obtain cash immediately upon issuing an invoice, rather than waiting to be paid, and therefore frees up pressure on your cashflow.

Check out our blog on keeping on top of cashflow here.