The internet is fueling the world economy. India is no exception. An enormous population, increasing smart phone penetration and cheap data rates make India a prime market for any e-commerce business. A report by Business Today states that Indian e-commerce business has reached $38.5 billion. But before you start up you need to figure out a business model,buy a software platform, have a logistics partner, have a sales & marketing plan. However, do not forget to have an accounting plan in place. A online venture is a challenge to an accountant and the founder. E-Commerce Accounting 1.0 is the prep lesson before you hit the ground running.
Choose an E-Commerce Platform
It all starts from having a tool for handling your entire online business. A e-commerce platform will enable you to:
- build your website
- catalog your products
- handle orders/invoicing
- connect with payment gateways
- manage your inventory
Some of the popular tools are Shopify, Magneto & Zoho Commerce. These tools will help you set up an online store quickly with least effort.These tools have to integrate with books of accounts for recording sales, purchase transactions. We recommend Zoho Commerce for the automatic integration with Zoho Books. This integration will save critical man hours.
A majority of your customers will pay you online. Your customers will make payments for purchases via a payment gateway. Your bank accounts will have to be integrated with payment gateways. There are multiple payment gateways to choose from like Razor Pay, PayU & PayPal. These gateways charge anywhere between 1.5% to 5% of the payment received as gateway charges. Further, they do not transfer amounts received instantly to the bank account. There is lag of 2-3 days before amounts are credited.
Moreover, a reconciliation has to be done between the invoices raised and cash received from the payment gateway. Your books of accounts must automate, partly if not fully, this process.
If you hold inventory, then opt for an inventory management tool. Always remember that unsold inventory blocks cash. Therefore, an inventory tool will give you an insight into fast,slow and non moving items. It makes sense to sell only fast moving items and stock slow moving only when there is a demand.For instance, offering discounts on slow moving items can unblock cash. Zoho Inventory allows you manage the entire process from procurement to sale seamlessly. Re-order level can be set for all items of inventory. This will prevent you from selling items that you don’t have.
Handling Product Returns, Credits & Discounts
E-commerce business thrives on discounts, cash backs & other credits. All of these have a financial impact. Seamless integration between the e-commerce store and accounts will help. As the number of transactions rise, discounts and returns are bound to increase. An accountant must be fed this information for tracking numbers. Financial insights from books of accounts can be used to calibrate business strategies. You can read our post on retail metrics here
This is the “last mile” for an online business. The most critical part of the business is on time delivery. Delivery deadlines have to be met and measured as a KPI. Indians still prefer Cash on Delivery, which means the delivery partners have to collect cash as well. Secondly, the cash has to be deposited into your bank account. Typically, there is a 2 week gap between collection & deposit of cash. In other words, your logistics partner becomes your debtor as well.
An accounting software must support integrations with logistics partners. This is a must as cash is involved.
Comply with GST Rules
In addition to the above, you must abide by GST regulations. GST in India is complicated. Different rates of taxes apply to:
- sales between the states
- sales within the state
- export sales
- additional services tied to product sales
Therefore, all the tools of your business must combine to meet this regulation. For example Shopify or Zoho Commerce must apply GST rates based on the customer location. Further, inventory tool must apply GST on warehouse transfers. Similarly,materials sent out for job work must also be addressed. As transactions increase GST filing must get automated as well.
This post is the result of handling clients in the e-commerce space. Integra Books uses and implements all the Zoho products mentioned in this post. The benefits of technology and automation can transform your business. Let Integra Books assist your online business. Get in touch!