B2B Payments

Amazon’s Pay By Invoice Illuminates Delayed Payment Debate In US

In the day-to-day minutiae of cash flow management, strategy is key. There can be a bit of a tug of war between accounts payable and accounts receivable — or, more accurately, buyers and sellers — and cash in and cash out.

The longer the buying party takes to pay, the tighter it gets for the seller. In the corporate realm, the same issues arise, and the dollars spent can be significant when it comes to firms selling goods or services online. Waiting for cash to come in can be excruciating, and perhaps even tough on keeping a going concern … going.

So it is with Amazon, which in recent weeks has boosted its efforts aimed at B2B transactions. At its highest level, Amazon has introduced third-party sellers into the mix for corporate transactions. But beyond that, Amazon is making a signal change to the way sellers in the U.S. pay and get paid.

And at least some corporates are less than enthused.

The reason lies with a new invoicing setup that some feel may pressure the “cash in” part of the cash flow equation.

The company will bring “Pay by Invoice” to market in the U.S. at the end of June, covering some, but not all, business buyers. Under this program, disclosed via email by the eCommerce giant via Amazon Business to sellers, corporates get a credit to their selling  on Amazon accounts. But buyers don’t have to actually make a payment at the moment they hit the buy button. Instead, they’re invoiced and have the option to have an extended payment due date.

There are a few wrinkles. Amazon has said the Pay by Invoice transactions guarantee payment — “even if the Amazon business customer is late or defaults on their payment to Amazon.” Payment is guaranteed as late as seven days after payment due dates, which implies 37 days of a payment cycle, conceivably. Sellers can opt to be paid with a bit more speed. But there’s a cost, as that option means sellers will have to a pay a fee of 1.5 percent of the invoice cost.

In the email alerting sellers to the change, Amazon said, “Pay by Invoice represents a new growth opportunity for sellers by encouraging Amazon Business customers to use the Amazon Marketplace as their primary channel for B2B purchases.”

The company further informed sellers that they need not do anything to be in the program, as enrollment was automatic.

It’s effectively an extension of a credit program, which — coupled with the opening of the ecosystem to third parties — seeks to boost B2B presence for Amazon three years after Amazon Business was launched.

This means sellers will now have to wait as long as 37 days to get paid, instead of getting paid as soon as items ship, as is the case now.

On sellercentral.amazon.com, in the forums, some customers expressed disdain for the new program.

Said one user, Lake, “I do not like this. I sell online because I do not have to put up with this crap. Some orders are going to be cancelled.”

Said another user, Oneida Books, “Net 30 barely covers getting inventory, shipping and stocking for FBA (Fulfillment by Amazon) and the sale …”

Yet another posting, this time by a tech firm, stated that “There is plenty of reason to worry. Just a single order for $5,000 of gear not paid for 30 days is enough to put many small businesses in a cash flow pinch with their suppliers who are NOT going to wait 30 days. Simple as that. One order. Now imagine 10 orders … or more. Don’t know about you, but we get plenty of higher [quantity] orders that amount to $5,000+. And Amazon is so gracious to allow you to get your money quicker for a 1.5 percent charge. Guess they forgot that the pure nature of price competition on Amazon pushes things to lower margins. Thus, this 1.5 percent charge can easily result in another 10–30 percent drop in your overall profit margin.”

Of course, there is another side to the debate. Amazon’s stance is that sellers would get a sales boost because there are business customers who want to pay on terms. The option is now there, and one might surmise the firms that want terms are the ones that have some scale in their given vertical. Scale implies larger orders. Larger-sized orders imply greater top-line growth for Amazon B2B sellers.

Beyond the vagaries of the B2B change, the larger issue of late payments may get renewed scrutiny. It’s no secret the scourge (at least it’s a scourge to sellers) has hurt firms across the U.K., for example. But the trends are getting a bit worse globally. Consider the fact that Euler Hermes, the trade credit insurance firm, found that longer payment terms seem to be a cost of doing business, and firms are taking longer to pay then they did even a decade ago.

The average Days Sales Outstanding (DSO) is now 66 days, measured globally — 10 percent higher than in 2008 and up two days from 2017. The United States, according to the research, shows an average DSO of 51 days. That is indeed better than the global average but the number is rising, noted the research.

The fact that, globally, payment terms are being relaxed at such an extended rate and term over a decade speaks to at least some mindset that companies are confident they will get paid … eventually. The rather sanguine performance of the U.S. economy certainly furthers that mindset. And Amazon seems to share that (relatively) relaxed view of payment terms.

But the public fretting from some firms reveals that margins are a concern, that cash flow cycles may be less than savory with even those extra seven days to pay as noted above. It seems, then, that extended payment terms may lead to extended grievances.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.