Optimizing Amazon Vendor Agreements and Pricing
Transcription
Most businesses run their accounts via provisional accounting. A provision is an amount that you put aside in your accounts to cover a future liability. The purpose of a provision is to make a current year’s balance, more accurate as there may be cost, which could to some extent be accounted for in either the current or previous financial year.
show moreWhat this means is that Amazon would like to include their allowances and accruals that they receive from your standard annual agreements for a particular month’s net receipts within that same month. This is so that their financial statements for any given month appear more accurate as they have included all their income and expenses within the same month, as opposed to where the income from the aforementioned agreements for a given month are normally only received in the following month.
As not everyone is privy to seeing the provision for receivables on their remittances. It must be noted that the more prevalent reason for Amazon to do this is if they are not entirely confident that a vendor can fulfill their agreements obligation within the next month, this may be due to a number of reasons such as.
Amazon knows they didn’t place a lot of purchase orders with a vendor for a particular month, or won’t be placing a lot of purchase orders with a vendor in the next month due to overstock reasons, etc, leading to the vendor, not being paid a lot in the coming month by Amazon, in order for them to afford the agreement deductions, then to avoid default payments from the vendor.
Then for these annual agreements, Amazon calculates and generates the provision for receivables on your account. In Amazon’s own words, provisions for receivables are temporary credit memos that Amazon can place on your account. When the forecasted costs associated with returns, marketing, and rebates that are due to Amazon exceed the forecasted payments owed to you.
The purpose of these provisions is to prevent returns, marketing, and rebates, creating a debit balance on your account. Provisions are deducted from payments due to you and are subject to a subsequent adjustment based on the actual costs of returns, marketing, and rebates, and the actual payments due to you.
The temporary provision for receivables will reverse when invoices for returns, marketing and rebates are settled or a decision is made not to return the inventory, Provisions are recalculated adopted or reversed on a daily basis as there are not real deductions, there are no invoice copies.