Many Vendor Central (1P) clients have recently noticed lower or missing payments from Amazon. If you’re seeing the same thing, you’re not losing your mind… you are likely noticing the result of Amazon’s “Provision for Receivables” deductions.
Here, we’ll walk through what this means, how to understand it, and how to recover any erroneous deductions.
What are Provisions for Receivables?
“Provisions for Receivables” (PVRs) are temporary credit memos (or a “temporary hold”) that Amazon may place on your account due to forecasted payables that are due to Amazon. Payables to Amazon could include the following:
1. Co-op or Contra-Cogs: Subscribe & Save, MDF, Damage Allowances, Freight Allowances, CRaP Allowances, Margin Guarantees. Basically, anything you’ve ever signed a co-op agreement for.
2. Chargeback and/or Shortages
4. Marketing: Amazon Advertising costs and balances
The purpose of these provisions is to prevent these items from creating a debit balance on your vendor account. Basically, Amazon wants to make sure they get paid for the cost of doing business with you – before they pay you.
How does Amazon determine the PVR amount?
Amazon factors the following four categories into their calculation:
- Accrued but not billed (ABNB tab): this is for promotions/agreements that have accrued but have yet to be billed
- Booking preview: A grouping of all promotions/agreements that Amazon has deducted in approximately the last year (including co-op, promotions, Subscribe & Save, damage allowance, sales, brand store fees, etc.)
- Sellout: A sales forecast for the coming six weeks for all active promotions and what Amazon forecasts the you will owe for their programs
- AP Forecast (APAGING tab): Expected upcoming payments to the vendor in the next month
What if Amazon’s calculations are wrong?
Well, they might be, but if they are, they’ll likely reverse them. Some of these costs figured into a PVR amount are estimates, not actuals. Line-items that are estimated are likely based on some trailing average. If calculations are wrong or over-stated, Amazon will post a reversal once the actual costs come in.
Why do my Provisions for Receivables seem to be Increasing?
Amazon’s PVR practice is not new. However, they are more impactful to vendors after highly promotional periods such as Prime Day. With increased ad and promotion spend for Prime Day, Amazon “provisions” an increased amount from their payment to you.
How can I determine if I’ve been impacted?
Go to Vendor Central — Payments — Financial Dashboard. Look for the “Adjustments” section in the middle of the page and click on “View Details.” From there, you can set your date range and download all holdbacks. You can also see any reversals Amazon has credited due to the actuals coming in lower than expected.
How will I know if they still owe me money?
We recommend that you run the math to see if you are owed monies. To do this, download the transactions for the time period about which you have concerns. Pivot or filter the spreadsheet by Transaction Type to collect the holdbacks together. From there, you can see all holdbacks and reversals. If the net of the holdbacks and reversals seems out of line, you should file a claim with Amazon.
Here are a few “watch-outs”:
-Beware of the timelines – Provisions for receivables are based on a set timeline – a timeline which may not match up with your specific payment terms. For example, if you look at your Amazon financial dashboard on the wrong day, it may look as though you owe Amazon more than they owe you (eek!).
-It may be difficult to identify and map to your internal cost center – Amazon consolidates all related fees and expenses into one remittance amount, which can present challenges for vendors who typically pay Amazon from different internal “funds.”
-Beware of seasonality or one-off issues – During heavy promotion times such as Prime Day or Holiday, your costs of doing business with Amazon tend to run higher. Similarly, if you have an issue that drives your chargebacks way up, for example, you may indeed owe Amazon more money than they owe you.
How can I understand my total cost to serve Amazon?
First, familiarize yourself with Amazon’s financial dashboard to reduce the mysteries that are factored into the provisional amount. It’s a best practice to understand, and control, your cost to serve Amazon. Following are some areas where we’ve seen clients’ costs begin to rise:
CHARGEBACKS – If your chargebacks are high or increasing, you may have some root-cause issues that need to be discovered and addressed. In many cases, chargebacks can be recovered. We offer this – as well as corresponding reporting and an Operational Health Dashboard – as a service to clients, so please reach out if you need help.
PAYMENT TERMS – If your payment terms are too tight, Amazon may still be waiting to receive your inventory after their payment to you is due. So, they’ll make an estimate of what they’ll owe you, and pay you only that amount. In addition, if you have a quick-pay discount in place, Amazon often takes the pay discount on a portion of the goods, applies a shortage to the remainder, and reconciles it later. Consider whether it makes sense to re-negotiate your payment terms.
INVENTORY LEVELS – keep an eye on your inventory levels. Remember, Amazon will only pay for what they believe they’ve received. If you believe you’ve sent more, check your shipments to Amazon. If that looks in order, check your item set up, including the casepack, inner, and each configuration and quantities. Amazon could be receiving a case as an each, for example, which would lead them to significantly understate what they owe you (and send the shopper too much!)
AUDIT YOUR CO-OP AGREEMENTS – Make sure you don’t have any duplicate agreements, and make sure you’re not signed up for auto-renew programs unless you intend to be. If you’ve signed two co-op agreements for the same item, Amazon certainly isn’t going to point it out – it’s up to you to identify the duplication.
AMAZON ADVERTISING – do the costs of advertising align with your expectations? If not, check with us or double-check your budgets, etc. in the advertising portal.
CUSTOMER RETURNS – do you have a high customer return rate for your products? Customer reviews are a great place to look for answers. What complaints to customers have about your products? Are your product detail pages (PDPs) potentially creating points of confusion that could be clarified?
DAMAGES AND REPLACEMENTS – Are your products arriving to customers damaged? If so, place some test buys and consider your packaging. Perhaps it’s time for some minor changes to prevent damages and leakages, or possibly a packaging overhaul.
Calculate the value of each of these costs – based on your cost of goods sold (COGS) – to estimate your total amount owed to Amazon and compare it with their payments to you.
What if I find discrepancies?
If any of the agreements or deductions contained within the report or calculation are found to be invalid, there is a dispute process available to you under “Dispute Management” in Vendor Central. However, wait a week or two to see if any of the amounts are reversed first.
What if I still can’t figure this out?
We’re here to help! If you are already an Ideoclick client, please contact your Client Success Manager for assistance. If you need help disputing claims, Ideoclick offers an Operational Compliance service with ongoing Chargeback, Shortage, and Provision for Receivables support, claims management, and robust reporting. Contact us for more information.