Factoring 101 Blog - Acounts Receivable Factoring and Other Industry News

Financing Amazon Sales: Seller Central vs Vendor Central

There is no denying that Amazon is one of the most important retailers to work with, and having your products available on Amazon is a great way to raise your sales volume. However, for most companies, a large increase in sales volume is not sustainable if they don’t have financing available. While there are financing options available for Amazon, it is important to understand that Amazon offers two very different ways of getting your products onto their site which they call Seller Central and Vendor Central. Depending if you are on Seller Central or Vendor Central will determine what types of financing may be available to you. Let’s take a deeper look at these two options, discuss the pros and cons of both, and see what sort of financing options will be at your disposal.

Seller Central

If you are on Seller Central, then you are a third-party seller on Amazon’s marketplace. In this case, you get paid when one of your items is purchased by a consumer on Amazon. You also have the option of allowing Amazon to handle the fulfillment or handling the fulfillment yourself. Should you wish for Amazon to handle fulfillment, along with customer service and returns, you need to ship your merchandise to their warehouses.

There are quite a few pros to being on Seller Central. First, anyone and everyone is invited to be on Seller Central. If you want to sell a product, or products, all you have to do is create an account. Of course, they do have rules about what types of products can be sold on their site, but so long as you comply you can become a seller.

Perhaps one of the biggest pros to Seller Central is you get to control the pricing of your products. As a result, if you also sell your merchandise to other retailers, you can make sure that the price on Amazon is the same as it is in other retail stores. This of course will keep your other customers happy as they won’t have shoppers looking at the price on Amazon and deciding to purchase the product from them instead. Another benefit is that you can adjust the price, so if a competitor lowers their price you can do the same

Another pro with Seller Central is that you are in complete control of how your product appears on Amazon’s site. You are uploading the images, writing the copy, and control the SEO. Therefore, if you are good at marketing and SEO you have a very good chance that you can get your product to rank high on search results and have greater sales. Of course, this can also be a con if marketing isn’t your strong suit and you don’t have a good understanding of Amazon SEO, which is different from Google SEO.

The other pro about Seller Central is short payment terms. In theory, Amazon will pay you as soon as your product sells, there is no waiting 30 days to get paid. The con however is that this is only in theory. If you are handling fulfillment yourself, Amazon needs to trust that you are actually shipping the products and that they arriving on time. Furthermore, regardless of who is handling fulfillment, if you have returns then Amazon needs to be able to recoup the money they returned to your customer from you. So, if Amazon sees that you are having problems with shipping or have a high rate of returns, they may withhold payment from you for however long they feel is necessary to protect themselves.

As for cons, you have two major cons. First, if you choose to have merchandise fulfilled by Amazon then you need to pay them for this service. This can be rather expensive, especially if the items you sell are cheap. This really is only practical for expensive items. Should you fulfill it yourself, then you either need to build the shipping expense into your products price, or charge additional for shipping, either way, your product won’t be eligible for Prime delivery which can hurt your sales figures. Regardless of who is doing the fulfilling, you will still need to pay Amazon any fees or commissions that they charge you.

The other major con is that products being sold by third-party sellers simply don’t sell as well as products being sold directly by Amazon. Part of the reason for this is trust, consumers trust Amazon but don’t trust a third-party seller who they’ve never heard of. That trust is further eroded by the fact that many third-party sellers are located overseas. The other issue is that you aren’t just competing with other third-party sellers, but with Amazon themselves. Obviously, it is in the best interest of Amazon to sell their own products over someone else’s products. Not to mention, no one knows better how Amazon’s SEO works than Amazon.

Vendor Central

Being on Vendor Central is a more traditional way of selling your merchandise. You are one of Amazon’s vendors and are therefore selling your products to Amazon, not to consumers. It is no different than having your product appear on a shelf at a grocery store, department store, or any other brick-and-mortar retailer. You are only responsible for shipping your merchandise to Amazon, after that Amazon takes over how they sell it to customers and how they fulfill customer’s orders.

Perhaps the biggest pro to being on Vendor Central is the fact that you have made a sale. Amazon has provided you with a purchase order, you shipped them the merchandise, and in 30 days you will get paid. You don’t need to worry about whether or not Amazon’s customers purchase your product as you are getting paid either way. Of course, as products sold by Amazon tend to perform better than products sold by third-party sellers, you should expect your merchandise to sell well on Amazon and to receive future purchase orders.

Another pro is that you don’t need to worry about the marketing of your product, that will be handled by the professionals at Amazon. They will decide how your product listing should look on their site and will be in charge of handling all the SEO. So, if marketing and SEO aren’t your strong suit, you don’t have anything to worry about.

A very important pro for anyone, especially those who sell cheaper products, is that fulfillment is not your responsibility and you do not have to pay for it. Amazon is solely responsible for fulfilling orders of your product, and your product will be eligible for Prime delivery. That said, Amazon will sometimes place restrictions on certain items stating that they will only ship with orders of $25 or more, but in general this not have too big of an effect on sales as most consumers will want to purchase more than just your item on Amazon.

Amazon also gives their vendors better tools. From better marketing tools to allowing them to participate in subscribe and save programs, vendors are given the tools needed to increase sales and therefore receive faster reorders. Plus, if you are on Vendor Central you can participate in Amazon Vine where you can send out free products to influential reviewers to ensure that your product has plenty of quality reviews before it starts showing up in search results.

Of course, there are cons to being on Vendor Central as well. Perhaps the biggest is that you have no control over the pricing of your products. Amazon is able to work on razor-thin margins because they make their profits by selling in large quantities. Plus, while Amazon may have to pay for shipping, they aren’t paying rent for expensive retail space and in general have fewer salaries to pay than a physical store would due to their highly automated warehouses. That means that Amazon may be able to undercut other retailers who you sell your product to. If consumers can purchase your product for less on Amazon, they may not be willing to purchase it from a brick-and-mortar store that they are shopping in. This of course can make other retailers mad and unwilling to carry your product in the future.

Another con to Vendor Central is the fees that you will have to pay. While you aren’t paying the fees and commissions that third-party sellers and Seller Central are paying, Amazon does take very large deductions for co-op fees and damage allowances. This of course will all be spelled out in the purchase order, but is something that you need to be aware of and build into your price.

What Financing Options Are Available?

With either Seller Central or Vendor Central, financing your business is crucial, especially if you start to experience sales growth as a result of Amazon. While Seller Central may pay you quickly, you still need to wait for a consumer to purchase your product before you will get paid. You also need to worry about Amazon slowing down your payments if they see a delay in shipments or an increase in returns. With Vendor Central, you may not need to wait for consumers to purchase your product or worry about returns because a customer changed their mind, but you will need to wait 30 days to get paid and hopefully will be receiving additional purchase orders during that time period. Unfortunately, there is no one-size-fits-all solution for financing your Amazon sales. The solutions available for Seller Central and Vendor Central are completely different.

For Seller Central your options are limited. Pretty much the only viable solution is Amazon’s own Amazon Lending program. While this is certainly a great option for third-party sellers on Seller Central, access to it is by invite only and Amazon determines who is invited and how much funding is available. Unfortunately, if you don’t receive an invite, Amazon Lending is not option. Banks or SBA loans are also most likely out of the question as they will require collateral, namely receivables, which you won’t have with Seller Central. There are other businesses who specialize in financing for Seller Central, but we are unaware of how reputable any of them are.

With Vendor Central you will have many more options because you have receivables. For one, getting a bank or SBA loan may be a possibility, but applying for these is a long process and they are difficult to obtain. Accounts Receivable Factoring, on the other hand, is a very viable option for Amazon vendors. With accounts receivable factoring rather than waiting 30 days to get paid by Amazon, your factoring company will purchase your receivables and fund you the same day you ship. As a result, with factoring you are speeding up your cash flow by 30 days. Another solution at your disposal is purchase order financing. Once you receive a purchase order from Amazon, you can then borrow the funds necessary to produce that order. For companies experiencing massive growth, purchase order financing can be an extremely powerful tool to have at your disposal. Often times factoring companies will offer purchase order financing to their clients, although it can also be obtained through companies that specialize in only in purchase order financing.

It is important to keep in mind, regardless of whether you are on Seller Central or Vendor Central, while there may be multiple financing options, you will be limited to choosing only one of them. The reason for this is that you can only pledge your collateral to one financial institution, with the most valuable collateral being your receivables. It is also important to keep in mind that with the exception of Amazon Lending, financing solutions will apply to more than just Amazon and will be available for all of your customers. Even if you are on Seller Central, it is possible that you could finance your Amazon sales through the factoring of receivables that you have for other accounts. It is important that you look at the entire picture when determining what financial solutions are available to your business and will meet your needs.

Which Should I Use?

The decision between Seller Central and Vendor Central is one that you need to make for yourself, assuming that you’ve been invited to participate in Vendor Central. There is no correct answer here, and it is possible that you may wish to utilize both options as Amazon may only want to purchase certain SKUs on their Vendor Central platform, meaning that you could sell other SKUs via Seller Central.

About DSA Factors

DSA Factors is a family owned business that has been providing accounts receivable factoring for over 35 years. We work with many clients who are part of Amazon’s Vendor Central program, but also provide financing of receivables for other major retailers as well as mom-and-pop stores. In addition to accounts receivable factoring, we also offer purchase order financing to our clients. If you have any questions or would simply like to learn more about factoring you can give us a call at 773-248-9000, email us at info@dsafactors.com, or chat with us here on our website.

Why Should I Offer Net Payment Terms?

Contact Us Today

DSA Factors - Money to Make Your Company Grow!

PO Box 577520
Chicago, IL 60657

 773-248-9000

 773-248-9005

 info@dsafactors.com

 

Contact Us Online!

DSA Factors
International Factoring Association


All product and company names are trademarks™ or registered® trademarks of their respective holders.
Use of them does not imply any affiliation with or endorsement by them.