The last couple of years saw the retail industry skyrocketing to unprecedented levels. The limitations of the pandemic era and the changing customer habits of the uptake in hybrid working patterns created a fertile ground for growth.
The value of UK retail sales rose to £421bn in 2021, but the rise in customer demands came with its challenges. One of the difficulties that growing retail businesses face is accounting, which will be the focus of this article.
1. Improper Inventory Management
Poorly managed inventory can lead to inaccurate financial records and bad business decisions. Your inventory is the backbone of your financial success, but due to the rapidly moving industry, it can be difficult to keep track of all the moving parts.
An efficient retail accounting strategy needs to be scalable and transparent, keeping track of the number of products in different stages of your process, from production to returns and items in the delivery process.
2. The Chargeback Loophole
Chargebacks have become a pressing concern for online retailers in recent years, with a 21% increase between 2018 and 2021. Through chargebacks, consumers can claim non-delivery to their payment providers forcing the retailers to issue a refund.
Although the first line of defence should be finding a solution to prevent them, getting a handle on how they are recorded in your ledger should also be essential.
Chargebacks pose a unique challenge that requires highly skilled accounting professionals to record and reconcile transactions and reversals without impacting your bottom line. 31% of organisations hire an external financial partner to manage these complicated tasks.
3. Badly Managed Data
To bring out the most of their business, retailers need to be proactive about making their accounting flow more transparent and visible, maximising data analytics.
Without accurate data, business leaders cannot make informed decisions on their company’s growth. Data reports and effective financial planning can unlock your full potential.
With access to data on how your business is performing or which products bring in the most revenue, retail accounting practices can help you identify how you can progress to the next stage of your journey.
4. Reseller Commissions & Fees
If your business strategy includes reselling your products on marketplaces like eBay or Amazon, you are familiar with the concept of additional fees on promotions or order fulfilment services on top of monthly fees. If not managed properly, these outgoings can create extra pressure on your profit margins.
With an effective retail accounting strategy, you can separate these fees into different expense accounts and use up-to-date automation software to track fee details and schedules. Access to this data can help you to set the right selling prices taking extra fees into account.
5. Handling Returns
Purchase returns can quickly eat into your cash flow if handled ineffectively. Items going through a return process can take significant time to get relisted, causing overstock issues with seasonal items that will have to be sold at a discount.
Returns cost UK retailers an average of £60bn a year, making it a significant challenge in retail accounting. To minimise loss of revenue, you must handle return reconciliations accurately while adjusting inventory with speed.
Final Words:
The ever-changing retail industry can bring numerous challenges to any business leader, but with the help of an external financial provider, organisations can quickly maximize their revenues.
Sanay is comprised of retail accounting professionals that serve as an extension of your company and are passionate about growth. Entrust us with your accounting needs!
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