In the past decade, e-commerce has dramatically risen to prominence across a number of markets and at all levels of business, from sole traders through to multinationals.
The pervasiveness of mobile technology has meant that instantaneous transactions can occur at any time. Increasingly sophisticated data gathering, and processing has allowed businesses to focus their advertising efforts with specifically targeted offers to consumers in order to maximise prospects of sales.
The rise of Amazon has supercharged this process across the global market. The changes to supply chains and fulfilment processes has fostered new e-commerce business models.
With the effects of Covid limiting people’s ability to attend physical locations, 2020 has brought e-commerce to the forefront of the global consciousness and emphasised not only the need, but also the apparent demand for such business.
With the rapid pace of change, the majority of businesses have had to either change their business models entirely or, at the very least, have had adapt to include some additional e-commerce offerings.
In making these rapid changes to business operations/ establishing brand new business ventures, businesses can often fail to appreciate how significantly e-commerce has changed the competitive business landscape. Businesses can also sometimes underestimate the reach that e-commerce can provide. It is easy to become overwhelmed or run into costly problems because of this extremely rapid/evolving growth.
E-commerce presents a host of unique practical, financial and legal challenges that can be drastically different to those encountered by traditional “bricks and mortar” businesses. This article will examine a few of the fundamental financial and legal considerations and offer some practical steps that businesses can take to address these issues.
ISSUE- PASSING OF RISK
With traditional ‘bricks and mortar’ businesses, the passing of risk has been a relatively simple exercise. A customer would accept risk of the goods at the store at the time of purchase and would then have the benefit of express warranties provided by the Seller and any implied or statutory warranties imposed under consumer protection legalisation, such as under the Competition and Consumer Act 2010.
With e-commerce, the issue can become clouded by a host of factors, such as:
SOLUTION- CLEAR TERMS AND CONDITIONS
For the above reasons, it is important that as businesses develop their e-commerce offerings, they also develop standard terms and conditions of trade that will be applied on their selling platforms to ensure their business’ protection. This will ensure customers are entering transactions fully and fairly informed and that the business owner has the best possible chance of a positive outcome in the event of any sort of dispute or problem.
Where possible, businesses should also have standardised terms and conditions for their contractors and suppliers.
Where that is not possible, such as instances where the service provider is a large multinational that will dictate terms, the business’ terms and conditions should adapt to the terms and conditions that they will have dictated upon them and certainly have them reviewed by legal experts to understand risks and to assist to develop systems to mitigate those risks.
ISSUE- CHOOSING THE WRONG BUSINESS STRUCTURE AND SYSTEMS
In order to minimise costs many e-commerce businesses will start out with a structure that is simple and cheap.
While that strategy has obvious appeal, if the business experiences rapid growth, owners can quickly find that the structure chosen is not tax effective or worse, the cost to change the structure in the future will have increased dramatically!
Similarly, e-commerce businesses will often consider customer facing platforms such as Shopify or Neto as the key business system at the start up stage. However, as the business grows the need for a more robust back-end business eco-system becomes apparent. If rapid growth is experienced, businesses will often find themselves overwhelmed by a deluge of business processes such as accounts payable, receivable, bank reconciliation, monthly management reports, payroll management, inventory management and project management.
As a result the business operation often becomes tedious and businesses can miss golden opportunities such as advanced reporting and analytics without the relevant tools to analyse the business such as customer trends, purchasing patterns and recurring costs.
E-commerce business systems provide a single touchpoint for all business-critical data including sales, inventory and other business critical data. As a result, the need for multiple business systems running concurrently and double-data handling is reduced.
Making the correct decisions on these fronts can be incredibly difficult as there are a multitude of options between modern cloud software applications with pay-as-you-go subscription models versus larger ERP systems which may have higher upfront costs. Even then, other issues such as integration and scalability must be considered to ensure the best result in terms of creating an eco-system of data sharing, where all systems operate with the same data thereby allowing for significant growth.
Once a system is chosen, the actual process of implementation must be carefully managed to ensure that system downtime is kept to a minimum and continued business operations with limited disruptions.
SOLUTION- TAKE ADVICE EARLY
The best course of action will be to take some initial advice from an accountant with specialised experience in the area of e-commerce.
Not only will these accountants have seen a number of businesses, and know the range of likely outcomes, they will be able to talk you through the pros and cons of various options and help you choose a structure and systems that strikes the right balance between initial cost effectiveness and scalability.
Once you have the structure and systems, settled, your accountant will be able to assist you in finding the right advisors to document and implement that structure and to provide solutions for the adoption and integration of the chosen business systems.
ISSUE- PAYROLL ADMINISTRATION
E-commerce businesses are all different. Whether you are operating out of one building or several locations around the globe, you need to ensure your payroll administration systems, policies, procedures and software are robust and adapted to your specific needs.
The level of payroll and employment tax obligations creep up as emerging market economies evolve. This is evidenced by the growth in global intricate social security systems and the emergence of Provident Funds in countries such as Brazil, China and India.
Technology has become critical to the success of e-commerce payroll administration in recent times. The rapid rise of social media, smart devices, big data and cloud computing has opened up avenues to access data more frequently from anywhere, at any time.
At the same time, employees are expecting and demanding greater access to their information and flexibility as to how and when it is accessed and experienced.
Let’s face it, those exercising their skills in the digital world are more likely to expect just-in-time digital access to their payroll information. They want it ‘right’ and they want it ‘now’!
Indeed, technology and social media means employees are better informed, more connected and more vocal. Get their payroll wrong, thanks to social media, and the wider world will very quickly get to know about it.
With an increasing number of payroll systems available, selecting a new platform that meets the requirements of the organisation is sometimes seen as a very big challenge. Identifying and implementing a system that not only fits the wider IT and business strategy but is capable of unlocking the power of the data held in payroll, is difficult and often seen as too risky.
Over time, organisations often develop separate systems as the needs of the business change. Mergers and acquisitions often bring different systems. The links between the systems often break down, leading to duplicate or lost entries or even worse a breach of data!
E-commerce must therefore look at a system that combines all components into a ‘single point of truth’ about their employees.
A further complication for Australian e-commerce payroll is the variety of industrial instruments that may cover various types of employees. Enterprise Agreements (EAs) are negotiated between an employer, their employees and an employee bargaining representative. They contain the minimum wage and working conditions that employees are covered by within their agreement.
Employers can be obliged to adhere to the terms of multiple EAs, each of which can contain different rates of hourly pay, loadings, allowances and overtime. All of these variances need to be configured and continuously monitored within the payroll system. Software, such as Electronic Award interpreters, automatically calculates employee entitlements based on hours worked and can be used to remove any guesswork in the interpretation for payments by the payroll team (historically a very manual system prone to errors… a compliance ticking bomb).
Additionally, most jurisdictions (including Australia) also require periodic reporting / lodgements of the payroll data as the payments are being made (Single Touch Payroll – STP in Australia). Without software automation, this task can be prone to errors and take too much time to administer efficiently over time. Ensuring a payroll software integrates with multiple jurisdictions can be tricky and e-commerce businesses should involve their IT specialists and accountants.
Unlike other industries which have grown steadily, making it easy to create standards and processes, e-commerce offers no such advantage. Both the company and its workforce must envisage and implement new procedures every day, making implementation a challenge. E-commerce businesses need to ensure they actively use the data they collect in their payroll software to continuously identify threats and opportunities and make better decisions.
SOLUTION – DOUBLE CHECK THE DETAIL
We would recommend the following actions to streamline payroll administration:
If you would like to discuss how you can best protect your business in e-commerce market, please contact us for more information. We are here to help protect you and your business.
The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.