Key to Success for Amazon SuppliersHow Amazon Suppliers and Sellers Can Compete
Key to Success for Small Amazon Suppliers
In June 2021, Luckbox Magazine sat down with Lara O’Connor Hodgson, CEO, and co-founder of Now. The ongoing push in Washington, DC, to address antitrust concerns regarding Amazon and other tech giants was discussed during the interview, revealing Lara’s insight about the impact of Big Tech business practices on small businesses.
Lara explains that while Senators Amy Klobuchar and Josh Hawley focus on Amazon’s e-commerce platform as a source of anti-competitive complaints, there is a significant anticompetitive practice that has been largely ignored by politicians. “The real danger for small businesses lies in Amazon’s balance sheet,” she asserts. “Not only does Amazon create its own products that compete on the platform against its smaller vendors, but the e-commerce giant also handles payment processing for these vendors. With long payment terms– stretching 45 days or more in some cases– Amazon effectively treats its vendors as a bank by capitalizing on trade credit.”
We’re covering the additional insights provided by Lara that didn’t make the final cut of the magazine edition. (Be sure to check out the interview right here.)
Specifically, we want to showcase what NowAccount can do for a small company that might find itself selling on Amazon… and competing against Amazon in a product category.
“Stretching” Payment Practices
During the interview, Lara used a hypothetical situation to illustrate the anticompetitive practice by the tech giant that is going largely unchallenged although it creates a significant financial disadvantage.
In her example, a small manufacturer of yoga mats is selling its products on Amazon’s retail platform. Meanwhile, Amazon is selling and marketing its Basics products – which includes a line of yoga equipment – on its platform. In this situation, both Amazon and the yoga competitor sell a product on the platform. Amazon not only receives revenue from the sale of its own product but it gets the payment from the sale of the vendor’s product as well.
“Amazon does not have to send the vendor payment for this product for several weeks or months, depending on the payment terms. This creates a distinct competitive disadvantage,” Lara explains.
How Amazon Helped Shape NowAccount
Lara started NowAccount because of her own experience as a small business vendor with Amazon. “They changed my payment terms from 30 days to 45 days unilaterally, and I quickly realized that all of the large orders from Amazon would put me out of business. Literally, while awaiting payment from Amazon, my firm could grow so much that I’d be out of business.”
With the launch of NowAccount, Lara explains that small businesses like hers or the hypothetical yoga mat distributor don’t have to wait on Amazon to process payment anymore. “Instead, they can rely on NowAccount to access their revenue right away.”
Let’s say that a company like Amazon bought 100 yoga mats. Typically, that seller will need to wait weeks for payment from the eCommerce giant. However, with NowAccount, they can receive payment the moment that they ship those mats. Once they receive the yoga mats, they can immediately put that money to work.
As Lara notes, the yoga mat company hasn’t borrowed any money when using her company’s platform. NowAccount is not a loan. In addition, there isn’t any factoring of an invoice. Instead, the supplier can receive their revenue immediately.
“If you think about it, NowAccount levels the proverbial playing field. It doesn’t make Amazon give up their money any faster,” Lara says. “But it allows vendors to get their money faster. It’s not a zero-sum game. It allows the company to be on even footing and decide when it gets paid. The manufacturer takes the revenue from those 100 yoga mats I just delivered, and I can go make the next 100 yoga mats and try and compete.”
Lara recalls that years ago when she was struggling with Amazon, Whole Foods, and other big customers, her only option was to borrow money from a bank. This was expensive, and it required personal guarantees and collateral. It also required Lara to take all the risks when Amazon was taking none.
“I am quite certain that Amazon Chairman Jeff Bezos doesn’t sign personal guarantees,” she says. “But I would have had to go borrow money from a bank, sign personal guarantees, put my house at risk, my children at risk, my spouse at risk. So that’s even above the actual dollar cost of the loan. Or I would have had to sign up with some factor that can be predatory just to compete. With NowAccount, I could just receive my revenue immediately. This platform is really the way commerce should work.”
Off-Balance Sheet Transactions
One of the other important insights of the interview that is especially important to small businesses is the way large customers keep these transactions off-balance sheets.
Lara explained the off-balance-sheet practices of these companies and why extended payment terms have become such a widely used practice.
“When Whole Foods takes your Visa, they get that money from Visa. They will book that revenue as cash. There’s a merchant fee for accepting a Visa. This is an expense. From an accounting perspective, when that dollar comes in, they book $1 of revenue, and they book a three-cent expense. There is no liability on the balance sheet because they don’t owe the money back to anybody in any situation. If you don’t pay your Visa bill, they don’t owe it back. But if you borrow money from a bank, and you now have $1, you have $1 liability because that’s not your dollar.”
Similarly, with NowAccount the dollar you receive is actual revenue earned as if payment was being received from Visa, American Express, or MasterCard. “It’s not an advance or a loan from someone else,” she says. “It’s your money.”
To learn more about how NowAccount can help your business, visit here.