Amazon’s delayed payments to marketplace sellers expose fragility of small businesses

Amazon’s revised payment terms for long-standing UK and European sellers on its marketplace, set to take effect next January, have created new cash flow concerns throughout the small retail sector.

The policy shift, delaying payments to Amazon marketplace sellers by up to three weeks, exposes the fragility of small businesses heavily reliant on prompt cash flows for their daily operations. The cash flow crunch poses solvency risks, hindering the ability of small retailers to purchase inventory, meet payroll obligations, cover operational expenses and service loan repayments. Approximately 33,750 SMEs in Europe, including the UK, that rely on Amazon’s marketplace will reportedly face these consequences, accounting for 84% of affected sellers, according to Amazon’s own data.

An Amazon spokesperson recognised the policy shift will create a “cash flow disruption”. Media reports have spotlighted instances where sellers have had thousands of pounds withheld, prompting government ministers to engage with Amazon to seek answers. These concerns compound the challenges already faced by retailers grappling with persistent inflation across input costs, transportation and logistics, dwindling consumer spending, and sporadic delivery delays stemming from weekend non-deliveries, public holidays, and recurring postal strikes.

Amazon is not alone in its attempt to introduce delayed marketplace payments, but its vast marketplace size magnifies the impact. In May 2023, Etsy, an online craft marketplace, enforced a payments reserve policy, withholding up to 75% of certain sellers’ sales for at least 45 days to cover potential customer refunds. However, following a UK vendor boycott, Etsy reduced the reserve level for most sellers to 30%. In March 2023, Airbnb hosts reportedly raised similar concerns about delayed payments from the short-term home-sharing platform, with waits extending to weeks or even months.

Originally planned for a phased rollout by early September 2023, Amazon’s revised payment policy faced fierce backlash from sellers, backed by government ministers, resulting in a postponement until 31 January 2024. Amazon stated that it extended the transition date for a limited number of sellers requiring support.

The new payment policy standardises payment terms for sellers, regardless of their entry date into the marketplace, aiming to create a level playing field. Established sellers that joined the platform prior to 2016 have benefited from a more generous “shipment date reserve”, paying them on the day orders were shipped, while newer sellers after 2016 are already subject to a “delivery date based reserve”, deferring payments to the delivery date plus seven days. This elongated payout period intends to safeguard payments for customer refunds, claims, and chargebacks, resulting in a minimum delay of 10 days (1–3 days for delivery and 7 days for payment). In practice, it could be even longer, with some sellers facing up to 20-day delays when the policy takes effect, according to Storfund, an advance payment service.

While Amazon’s delayed implementation may not be the compromise sellers hoped for, it offers a window of opportunity for those affected to prepare for the incoming cash flow changes. BTG Advisory is well-placed to help affected Amazon sellers navigate this evolving environment. Sellers should identify potential risks stemming from late payments in their day-to-day operations, such as reduced cash flows, refinancing requirements, payroll challenges, potential customer loss due to reduced inventories, and ultimately lower revenues.

Once risks are identified, proactive steps can be taken to mitigate these risks. Many small businesses may benefit from third-party expertise to expedite and expand the range of solutions available. Begbies Traynor Group can aid affected sellers in reviewing their cash flows, exploring alternative funding sources, and assessing the sustainability of their business models. Timely assistance is crucial as it broadens the spectrum of potential solutions. As we approach the busy final quarter of the year, businesses impacted by these changes may benefit from engaging with the Begbies Traynor Group team today.

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Our clients include commercial organisations of all sizes that may be facing day-to-
day or long-term financial challenges – and we’re here to assist them meet those challenges in order to secure the best possible financial outcome.

We’re committed to providing a prompt and responsive service by placing an expert in front of you at the earliest opportunity in order to assess your position and ensure you have as many options to consider as possible. The more options you have available the better the chances of a successful rescue.