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California Business Journal
E-commerce Business Margins

4 Financial Blindspots That Could Be Hurting Your E-commerce Business Margins

by Alexis DeFrank, California Business Journal
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E-commerce lets retailers bring the shopping experience to the online world. And with usage of smart devices and the internet increasing exponentially across the globe, it only makes sense that merchants would want to leverage this business model to reach more customers and grow their enterprises. E-commerce also brings a whole new level of flexibility and convenience to the consumer, and as such, it continues to be a highly profitable avenue for modern-day businesses.

Still, it’s possible that you might be overlooking some shaky aspects of your business that open the door to financial risks. Apart from the constraints in managing transactions, there’s also the risk of fraud and scams that might negatively impact your business as well as your customers. Managing an e-commerce venture is no easy feat, but with the right tools and proper oversight, you can sustain smooth business operations and keep the risks at bay. With that in mind, here are some of the financial blindspots you may want to address in order to protect your bottom line.

Inadequate Payment Processing Systems

At its core, an e-commerce business is largely reliant on the efficiency of their partner financial institutions (FI) and payment processors. In cases of failed transactions and customer disputes, your financial partners must provide adequate support to promptly resolve issues. It would also be ideal to partner with service providers that let you accommodate a wide range of payment channels, especially since most customers prefer having access to more than one payment option—be it via card, wire transfer, e-wallet, or any other method.

As such, you should consider partnering with banks, fintechs, and other FIs that employ reliable banking platforms—more specifically, one with efficient payment processing solutions. The ideal tool must be able to handle various payment processes, either via web or mobile devices. In addition, your bank or payment solution must have good customer service to provide on-demand assistance to customers, allowing your business to sustain the flow of transactions.

Inefficient Authentication and Security Methods

Fraudulent acts, data breaches, and other criminal activities continue to be prevalent in the e-commerce world. In the first half of 2022, the Federal Trade Commission (FTC) reported that Americans lost a total of USD 3.56 billion due to fraudulent activities, particularly e-commerce scams. Another Merchant Savvy report also stated that almost half of e-commerce businesses have already experienced a form of fraud. If you don’t have strong authentication and verification measures in place, your online business is at risk of getting scammed, losing revenue, and tarnishing its reputation.

With this in mind, it may help to apply best practices for fraud detection and transaction monitoring. For one, you can ensure that customers strictly follow card code verification (CVV) and address verification requirements, especially for credit card-based transactions. It may also help to monitor anomalies in billing addresses and IP locations, update your e-commerce platform with the latest security features and protocols , and provide staff training on fraud detection and cyber hygiene.

For an added layer of security, you may want to opt for financial services with a strong cybersecurity posture and use multi-factor authentication when approving transactions. It may also be beneficial to partner with a bank or FI that uses robust anti-money laundering (AML) solutions to keep transactions as transparent as possible.

Mismanaged Accounting and Inventory Processes

E-commerce businesses usually handle hundreds of transactions every day. It can be overwhelming to manage a large volume of items, and a lack of oversight may cause your team to switch up orders, bungle up your accounting records, or possibly invite risks such as privacy breaches and chargeback scams. On top of that, outdated inventories and miscategorized items may drive away customers and get them to write less-than-glowing reviews of your business.

It may help to subscribe to third-party accounting services designed to help you manage your books while you focus on growing your business. Some services even cater to clients with multiple e-commerce channels and shoulder the burden of bookkeeping, ledger management, tax compliance, and all other forms of number-crunching. Besides accounting services, it may be a good idea to use inventory management and resource-planning tools that help you monitor your inventory and re-stock items as needed.

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High Shipping Costs and Unoptimized Logistics Strategies

Apart from point-of-sale (POS), back-office, and administrative matters, you also need to focus on the logistics side of your business. For instance, unjustifiably high shipping costs might make your customers pass on you in favor of competitors with lower shipping fees. It would be ideal to do your due diligence and find shipping providers with a good track record and reasonable fees that would save customers money. It would also help to negotiate with your shipping service for free additional boxes for a more cost-effective logistics strategy.

Staying Afloat in the E-commerce Seas

The burgeoning e-commerce landscape requires bringing financial best practices to the digital age. With over 2 billion people shelling out trillions of dollars for online purchases, it’s important for you as a merchant to stay on guard against malicious actors seeking to take advantage of innocent shoppers and businesses. Besides that, you would also need to stay competitive by banking on good reviews, timely customer assistance, and convenient back-office and customer-facing processes.

At its core, a successful e-commerce business must provide a one-of-a-kind experience that lasts throughout the shopping cycle. From checkout to delivery, your customers must always feel as though doing business with you is a bang for their buck—and worth doing over and over again.

Tags: accountingbestbest practicesbooksBusinessbusiness operationsbusinessesconvenienceconvenientcustomer servicecybercybersecuritydatadevicesE-commerceE-commerce Business Marginsfinancialfinancial servicesfix E-commerce Business MarginsfocusIPmobileonlineonline businessPayment Processingsolutiontaxtrainingtrouble with E-commerce Business Margins
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Alexis DeFrank, California Business Journal

Alexis DeFrank, California Business Journal

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