Our latest video covers the important questions brand manufacturers need to ask, as well as benefits to consider before adopting a hybrid (1P/3P) selling model on Amazon. Andrea Leigh, Ideoclick’s VP of Strategy, discusses the four elements to consider and the three main benefits brands can realize when adopting a hybrid approach to selling on Amazon.
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.
Amazon vendors have been asking for help strategizing and managing their negotiations with Amazon. If you haven’t already closed Annual Vendor Negotiations (AVN), here’s a summary of everything we’ve previously published on the topic.
The Jason & Scot Show episode on Negotiating With Amazon
Videos and Infocasts
Video commentary on margin guarantees
We have developed a handy negotiations tracker that can help you organize your current terms, Amazon’s ask, and plan your response. You can also calculate your total cost to serve as a percentage and dollar value to help you stay on your toes while negotiating.
If you’re a vendor with Amazon, it’s that time of year again: annual negotiations. Here are a few big mistakes that are often made in negotiating with Amazon, along with tips on how to avoid them!
1. Not knowing your cost to serve Amazon
Amazon only includes selected terms in their email asks for a reason – hoping you’ll forget about the other terms they aren’t mentioning. Example: The email might mention the MDF and damage allowance, but not the freight allowance. As a result, the vendor doesn’t include the freight allowance when assessing their total cost to serve and signs up for more increases than they would have.
We recommend creating a comprehensive list of your current terms with Amazon…or you’ll wind up paying more than you should. Make sure you use a tracker, like the one you can download via this link, and fill out relevant data in advance. When you have this on-hand while talking with Amazon, you can instantly determine how different terms can affect your total cost to serve.
2. Signing up for unlimited funding, such as Margin Guarantees and CRaP allowances
Instead of asking for back-payment for lost profits, or to keep CRaP items alive, Amazon has designed a new agreement type – Margin Guarantees. In addition to signing up for unlimited funding, these agreements will drive a disproportionate amount of sales to items that are lower profit for you. See our video where we provide our perspective on margin guarantees, as well as some alternatives.
3. Responding too quickly
Unless Amazon is threatening to stop orders, stalling can’t hurt. If you’re not a top brand in your category, they may de-prioritize your negotiations. Several mid-market clients last year stalled long enough that Amazon simply extended their current terms for another year. Ask a great many questions, request supporting data from Amazon, and let them know you need time to review with your leadership.
4. Trying to keep your CRaP alive
If you haven’t already transitioned away from sub $10 price points on Amazon, you’ll want to start doing it now. You need e-commerce-friendly pack sizes that ship profitably for both you AND Amazon (and Walmart.com, Target.com, etc.) Let’s face it, soon, all sub $10 items will be sold in two+ packs online. If multi-packs don’t make sense for you, consider bunding different complementary products together. Also, request MOQs to be put in place for your sub $10 price point items.
5. Not being vocal
Many situations may exist in which it’s important to tell Amazon that you’re dissatisfied: Is Amazon holding your cost increase proposal hostage? Threatening to CRaP out half your assortment? Copying your product with Private Label? Putting Private Label ads on your pages?Annual negotiations are a great time to remind them of these issues.
Current clients should contact their client success team with questions. If you’re not already a client and want to learn more about our Amazon managed services offerings, please contact us! Contact Us
Staring September 3, 2019, Amazon will require compliance with updated packaging guidelines: SIOC (Ships in Own Container, or minimum Tier 2) certification for larger products, or retail vendors will receive a $1.99/unit chargeback. Here’s what you need to know to comply with Amazon’s Packaging Certification Requirements / Frustration Free Packaging Requirements:
As a 1P manufacturer selling on Amazon, you are well-aware of the many compliance guidelines and standards that must be met to utilize its platform … and that they are subject to change! Amazon packaging certification requirements may be complex, but it helps to understand all the related terms and the process for receiving certification.
Since Amazon will begin charging fees associated with non-compliance of Frustration-Free packaging on September 3rd for larger products, it’s important to get the packaging right, and start the process very soon. The testing and certification process can take up to several months, depending on the number of ASINs being certified.
Although Amazon’s packaging guidelines are admirable from a climate and customer perspective, they may soon create significant headaches and chargebacks for those who weren’t early-adopters in certifying products under Amazon’s Frustration-Free Packaging
Here’s a quick guide to the acronyms and terms you’ll see when navigating this program:
Which Products Are Affected?
The Frustration-Free Packaging/Ships in Own Container chargeback is applied only to packaged products that have not been certified as Tier 1 or Tier 2 (FFP or SIOC) and are greater than 18″ x 14″ x 8″ or greater than 20 pounds. The chargebacks will not apply to some product categories, such as the Pet category. However, manufacturers in all categories can watch the progress of this program and presume that something similar down the road may be implemented…so best to get ready now!
Which Products are Unaffected (for now)?
The following ASIN classifications are currently unaffected:
- ASINs that have any Hazmat classifications (ex. ASINs that include Lithium Ion batteries)
- ASINs in Prime Pantry, Amazon Fresh, or media
- ASINs with its longest side less than 9″ or its shortest side less than 0.375″ or its median side less than 6″ (These are the minimum dimensions required to certify as Tier 1-FFP or Tier 2-SIOC).
- ASINs that are at least eight months old (i.e. more than eight months from the date the ASIN was set up) and have shipped fewer than 250 units in the trailing twelve months
- ASINs that are packaged for shipment to Amazon (ex. master carton) in an orientation that nests or interlocks the individual selling units to maximize freight cube efficiency
How Much is the Chargeback?
The chargeback will be $1.99 per unit. To help you estimate the cost of the impending charge until certification is received, Amazon has been assessing SIOC chargebacks (in waived status) to indicate which ASINs are impacted. To see what your fees are likely to be, go to the general operational performance tab in Vendor Central and click on the SIOC tile. You can see detail into the chargeback data under the “view defect list” under “Total Chargebacks” on the operational performance tab in Vendor Central (example below).
Once you’re in the detail page, filter by chargeback type – SIOC and click “apply” (see below).
Why is Amazon doing this?
Amazon Packaging Certification requirements are necessary because, in Amazon’s own word, the mission is “to optimize the overall customer experience by collaborating with manufacturers worldwide to invent sustainable packaging that delights customers, eliminates waste, and ensures products arrive intact and undamaged.”
In addition to addressing environmental issues and improving the customer experience, Amazon is continually working to reduce prep and shipping costs. Overboxing items is expensive, in both labor and materials. Also, this could help Amazon fit more packages in a truck, which equates to a supply chain efficiency boost.
Amazon has three levels of packaging certification for its vendors:
Tier 1: Certified as FPP – Frustration-Free Packaging
- No overbox required
- Minimal damage/defect rates
- No Amazon prep required
- Easy open for the customer
- Minimal packaging
- Curbside recyclable packaging materials
Tier 2: Certified as SIOC – Ships in Own Container
- No overbox required
- Minimal damage/defect rates
- No Amazon prep required
Tier 3: Certified as PFP – Prep-Free Packaging
- Overbox is required
- No Amazon prep required
- Minimal damage/defect rates
Note that product packaging smaller than the minimum dimensions of 9” long, 6” wide, and 0.375 high can only qualify for Tier 3 as it will require an Amazon overbox. Additionally, Hazmat classified products will not be eligible for any level of certification.
The ultimate goal for vendors is to achieve Tier 1 certification. Although, items certified at Tier 2 will avoid the SIOC chargeback as well.
Refer to these official guidelines to find Amazon’s definitions and parameters for each requirement.
Steps to Follow for Certification
To achieve certification at any of the levels, your primary ASINs must be tested with a third-party ISTA certified lab or APASS Lab according to desired Tier. For Tier 1 and Tier 2 testing, the ISTA6-Amazon (SIOC) test must be performed. For Tier 3 certification, the INSTA6-Amazon.com overboxing test method must be performed.
After testing, you must submit the resulting ISTA6 packaging test report along with the enrollment and certification process through Vendor Central.
Refer to this Amazon testing page to ensure that you are employing the correct test methods and report templates, which vary depending on weight and dimensions of the packaged product. This page also has an extensive video library illustrating the different test methods.
2. Enroll and Certify
Once testing is complete, enroll and certify your ASINs, following the process that is specified in this document. Note that the previous Amazon Packaging Certification enrollment portal is no longer operational. To enroll and certify your ASINs, you must now use the “Contact Us” function under “Support” in Vendor Central.
Primary ASINs must be individually certified, but secondary ASINs can be bulk certified. Secondary ASINs are those that retain the primary ASIN’s same shape, packaging design, material composition and have very similar sizing. See the form-factor certification rules for determining primary versus secondary ASINs. Each primary ASIN being enrolled needs its own enrollment template submission.
3. Redesign, if necessary
If you are unable to achieve packaging ISTA-6certification, you may want to consider a packaging redesign to comply and certify. This Amazon packaging design page and the APASS network should be helpful.
If you haven’t already started working towards compliance, start now! This process could take a while, and in the meantime, you’ll soon start incurring chargebacks.
Don’t attempt to short-cut the process. You must follow Amazon’s enrollment requirements properly. For example, use the required template for enrolling each primary ASIN (follow the example shown on the second tab of the spreadsheet). Amazon has even published very specific requirements for the naming convention when saving the enrollment template.
Use Amazon’s published videos designed to help you with the process:
Walkthrough of the Vendor Enrollment Template
Completion of the Vendor Enrollment Template for testing and certification
Vendor Enrollment ASIN detail assistance
Packaging test method videos can be found when you scroll to the bottom of this page
It’s likely that this program will eventually be rolled out for almost every vendor on Amazon. For any future product launches where Amazon may be a sales channel, FFP/SIOC requirements must be evaluated.
Ideoclick is here to help. Contact your Ideoclick Client Success Manager if you have additional questions. If you aren’t a client, contact us to learn more about how we provide the full spectrum of operational and marketing services to build brand velocity on Amazon.
Now that the Winter King has been slayed, it’s safe to say that Summer is coming. Of course, with Summer upon us, it’s time to get ready for Amazon’s Prime Day. If you not aware of Prime Day, we will let you on a secret – it’s a big deal and is expected to be even bigger this year. While Amazon has not announced the date, based on prior years we can expect Prime Day to he held on the second Tuesday of July. Here are some things to consider as you plan for this event:
Promotions: Last year we observed a wide performance mix for clients that ran Lightning Deals. Categories such as Toys, Electronics, Luxury, Kitchen, Soft Lines, and Gifts did well. Others like consumables experienced less than stellar sell-through in most cases. If you are planning on running a Lightning Deal, keep in mind that all deals must be run at a minimum of 20% off and all ASINs in the deal must have 3.5 stars or better. On top of the discount you give to the customer, Amazon will charge you a merchandising fee of $500 for deals that run on Prime Day and $300 for deals that run during Prime Week. For those choosing not to run Lightning Deals, we recommend running coupons to help drive conversion during this high traffic period, especially if your product is a good fit for Subscribe and Save.
Marketing: As with promotions, how you choose to set your AMS strategy should be dependent on the category of products you sell. The same categories that are a good fit for Lighting Deals are also a good fit for an increased AMS budget on Prime Day. Other categories should instead focus on leveraging the increased traffic on Amazon both pre and post Prime Day and set budgets accordingly. Additionally, incorporating a cross-channel marketing strategy in order to drive traffic to your Amazon deals from other digital channels is a best practice that proved to perform well for clients during Prime Day last year.
Operations: Even the best promotional and marketing plans will if the right amount of product is not in stock on Prime Day. We are advising our clients with Seller Central promotions to ship the needed inventory four weeks prior to Prime Day. On the Vendor Central side, Amazon’s inventory planning system will automatically consider the impact of all approved promotions and order accordingly.
At Ideoclick, our marketing services team are expert strategists and help our clients efficiently leverage the increased traffic around Prime Day. If you are not already a client, reach out to us at email@example.com to learn about how we can help.