Growth in E-Commerce in India in recent years
Medium to long term growth story of E-commerce industry in India promises to be attractive. The E-commerce is expected to grow steadily over the forecast period, recording a CAGR of 8.08% during 2024-2028. The E-commerce Gross Merchandise Value in the country will increase from US$107.3 billion in 2023 to reach US$160.5 billion by 2028. [1]
The growth in the e-commerce must keep pace with proper accounting so that there is proper transparency and accountability in the E-commerce Companies.
Understanding E-commerce Accounting Reconciliation
At its core, reconciliation in e-commerce accounting involves comparing financial records across different systems to ensure consistency and accuracy. This process typically includes:
Sales Reconciliation: Matching sales records from the e-commerce platform with those from payment processors and banks. Discrepancies can arise due to fees, refunds, etc.
Payment Gateway Reconciliation: Verifying transactions processed through various payment gateways against actual deposits in the bank account. Timing differences and transaction fees are common challenges here.
Inventory Reconciliation: Aligning inventory records with actual stock levels to accurately reflect cost of goods sold (COGS) and prevent discrepancies in financial statements. For example, taking reimbursement from the marketplaces for inventory lost-in-transit or customer not returning the good, etc.
Expense Reconciliation: Ensuring expenses such as shipping costs, platform fees, and marketing expenditures are correctly recorded and allocated.
Importance of E-commerce Accounting Reconciliation
1.Financial Accuracy and Transparency:
ØEnables startups to produce accurate financial statements, that are crucial for decision-making, investor relations, and regulatory compliance.
ØIdentifies errors and discrepancies early, preventing financial misstatements that could lead to penalties or investor mistrust.
2. Operational Efficiency:
ØStreamlines financial operations by providing a clear understanding of cash flow, sales performance, and expense trends.
ØFacilitates proactive management decisions based on reliable financial data. For example, high logistics cost charged by the various marketplaces.
3. Compliance with Regulations:
ØEnsures adherence to accounting standards and regulatory requirements specific to e-commerce businesses.
ØFacilitates audits by providing auditors with accurate and verifiable financial information.
Best Practices for Effective Reconciliation
Automation and Integration
Integrations with e-commerce platforms and payment gateways to automate reconciliation processes will be helpful in a long run as the business grows but having excel files with your own formulae and driving the reconciliation will have good control over the data to understand and then import in the accounting software.
Regular Monitoring & Review
Supervise reconciliation at regular intervals (weekly or monthly) to promptly identify discrepancies and take corrective actions.
Documentation and Audit Trails
Maintain detailed records of reconciliation activities, including supporting documents and audit trails, to facilitate audits and ensure transparency.
Cross-functional Collaboration
Involve stakeholders from finance and operations departments to ensure comprehensive reconciliation across systems and processes. Operation Teams plays an important as they track the movement of goods on the marketplaces.
Conclusion
Mastering e-commerce accounting reconciliation is essential for maintaining financial clarity, operational efficiency, and regulatory compliance in the fast-paced world of online commerce.
By implementing robust reconciliation practices, businesses can mitigate risks, enhance decision-making capabilities, and build trust with stakeholders. However, it is essential to allocate sufficient time for strategy implementation as results may take time to materialize.
At Acquisory, we offer financial reporting and accounting services tailored for startups operating through diverse e-commerce marketplaces that any startup would require in understanding profit margins, Channel-wise profitability, product-wise analysis, monthly cash flow and balance sheet, cohort analysis for repeats and LTV, sales dashboard, deferred revenue analysis, etc.
[1] https://finance.yahoo.com/news/india-ecommerce-business-investment-report-114900208.html