Behind-the-scenes challenges e-commerce companies face

Everyone is running to either open an e-commerce company or work with one! But little is known of the pain a large e-commerce company faces. While most of us see bright images and the big discounts of e-commerce, there are only a few who know the challenges these companies regularly run into behind the scenes.

There are a number of challenges keeping prospects away from exploring what could otherwise be the most attractive market in the globe. The following can be e-commerce companies' external challenges:

• Product and Market Strategy
• Customer/Digital Experience
• Payments and transactions
• Fulfilment

But, in this article we will focus on internal challenges faced by these companies, which impact their overall business prospects. Some of them are:

Compliance framework: Compliance framework and adherence of local laws is the most basic need of any business. Many e-commerce companies are funded and governed by global laws of tracking compliance. Some of the key areas to look for are:

• Whether the company has defined processes with identified risks and controls and how these controls are tested.
• Is the company complying with all direct and indirect taxation accurately and in a timely manner

Data management and accounting issues: E-commerce companies have a huge transaction base based on order book, but what we don’t anticipate are the multiple layers of each transaction. Every customer order generates seller order, logistics order and many more internal reconciliation transactions. Each of these transactions have financial impact and any lapse even in a single layer could result in huge financial loss, which may go unnoticed until the same is reconciled on regular frequency.

Managing logistics partner and settling them: Now, every-time an order is received, the same gets allocated to a logistics partner based on pin code coverage, and once the logistics partner delivers the same and collects cash, it is deposited to the e-commerce company. There are a number of areas which needs to be looked into:

• Managing logistics partner pin code based on serviceable or non-serviceable
• Reconciliation of cash collected by logistics partner and deposited to company account
• Logistics partner commission settlement
• Reconciliation of weight of article which is charged by logistics partner and weight which is measured by the company.

Managing seller registration and settlement: The most important aspect of e-commerce business, especially in the marketplace, is managing seller/vendors who are selling their products on the platform. Some of the key areas of concern are:

• Seller and vendor registration, catalogue update and blocking
• Reconciliation of seller settlement
• Seller return and refund reconciliation

Inventory accounting: One of the key challenges for operational success is the company's inventory management process and ability to effectively manage a lean working capital. Additionally, in order to ensure that inventory is available at the right time and at the traceable location, these companies need to manage inventory records in a comprehensive manner. Error in maintaining these records gets converted into financial loss due to inventory loss and non-fulfilment to customer.

Now, the bigger challenge for e-commerce companies is managing these internal challenges, which are neither visible nor controllable, and involve a lot of manual work. Real challenges these companies have include,

• lack of qualified resourcing,
• low focus on IT application, and no real-time audit.

About the Author:

Gaurav Shukla, Partner, Advisory & Outsourcing, A Chartered Accountant with over 12 years of experience in Finance & Business Consultancy, Process Consultancy, Process & Controls Review, Program Management.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)