Understanding E-Commerce Payment Processor Fees and How They Affect Your Financial Statements
As an e-commerce business owner, understanding your various expenses and how they affect your financials is vital. One of the most significant expenses for any e-commerce store is the fees charged by your payment processors (Shopify, Stripe, Afterpay, etc.) In this article, I’ll explain how to account for the payments you receive from these companies and how to break them out for accurate bookkeeping.
Bookkeeping for these payments is not as straightforward as “normal” sales, not only because of timing differences (you may make the sale in one bookkeeping period but receive payment in another) and the fact that you will receive payment for multiple sales in one receipt, but also because the processor will deduct various fees, meaning that what you receive does not match what you sold. Typically, these deductions may include:
- Transaction fees
- App fees
- Credit card processing fees
- Other fees, such as website shopfront fees, etc.
How Should the Fees Deducted be Categorized?
There are two schools of thought on how e-commerce fees should be treated: are they Cost of Sales (direct expense) or are they overhead (indirect expense)?
Generally, for an expense to be considered part of COGS (Cost Of Goods Sold), it must be incurred only if you make a sale. In a traditional “bricks and mortar” set up, because credit card fees are only incurred on some sales, these fees would be considered as an indirect expense, therefore not affecting the gross profit on sales. However, for an e-commerce business, since these fees, along with other e-commerce fees, are incurred every time you make a sale, they should therefore be considered COGS.
You can also categorize them separately as “selling expenses” to be deducted after the traditional gross profit, to give a final gross profit, so the traditional gross margin can be compared to other businesses in your sector.
Should You Outsource Your E-Commerce Bookkeeping?
Now that I’ve discussed how to break out and categorize your e-commerce and credit card processing fees, we should consider whether outsourcing your bookkeeping makes sense for your business.
Outsourced e-commerce bookkeeping can provide the expertise and support you need to manage your financials, while helping you save time and money. By partnering with an experienced e-commerce bookkeeper, you can focus on growing your business and serving your customers, while leaving your financials in expert hands.
Here are some of the benefits to consider:
- Cost Savings: Outsourcing your e-commerce bookkeeping is cost-effective. In almost every case, using the services of an external, experienced e-commerce bookkeeper will be far less expensive than hiring and training in-house. On the other hand, if you are doing your own books, this is almost certainly more expensive than employing the services of a bookkeeper, because while you’re doing administrative tasks, you’re not out there earning money.
- Time Savings: e-commerce accounting can be particularly challenging, especially if you don’t have a financial background. Keeping track of inventory, sales, expenses, and other financial data can be overwhelming, and it can be easy to make mistakes. Using the services of an experienced e-commerce bookkeeper, you can save time and concentrate on what you do best.
- Expertise: Outsourcing your bookkeeping gives you access to experienced bookkeepers who specialize in e-commerce, so you can be confident that your financials are being managed by experts who understand the unique challenges of e-commerce bookkeeping.
- Better Understanding of your Financial Statements: Outsourcing your e-commerce bookkeeping will give you better financial visibility into your business. Your bookkeeping firm can provide regular financial reports, so you’ll know exactly where your money is going and how your business is performing.
- Compliance: e-commerce bookkeeping can be complex, especially regarding tax compliance. Outsourcing your bookkeeping can help you stay in compliance.
- Scalability: Outsourcing bookkeeping services can provide businesses with scalability and flexibility. As your business grows, its bookkeeping needs will also change. By outsourcing, you can easily scale up or down your bookkeeping services to meet your changing circumstances. Additionally, outsourcing bookkeeping services can provide you with greater flexibility, as you can choose the services that best meet your needs and budget.
- Focus on Your Core Business: Outsourcing your e-commerce bookkeeping allows you to focus on your core business. You won’t have to worry about managing your financials; you can focus on growing your business and serving your customers.
Outsourcing bookkeeping services can provide your e-commerce business with a wide range of benefits, including cost savings, expertise and experience, improved accuracy and efficiency, scalability and flexibility, and access to real-time financial information. By outsourcing your bookkeeping functions, you can focus on the core competencies and grow your business, while leaving your bookkeeping requirements to qualified and experienced professionals.