Industry Insight: Handling E-Commerce Companies in Audit Sight (Payment Processors)

E-commerce companies introduce unique complexities into Proof of Cash due to their reliance on third-party payment processors such as Stripe, PayPal, Shopify Payments, and others.

Unlike traditional businesses where cash flows directly into a bank account, e-commerce cash flows often move through intermediary platforms, creating timing differences, net settlements, and additional reconciling items.

This article outlines how to handle these dynamics in Audit Sight for a clean and accurate Proof of Cash.

Understanding the E-Commerce Cash Flow Model

In a typical e-commerce environment:

1. Customer makes a purchase → payment is processed via a payment processor
2. Funds are captured by the processor, not immediately deposited into the company’s bank account
3. The processor:
   • Deducts fees
   • Aggregates transactions
   • Pays out net cash to the bank account (often daily or in batches)

Key Implication

There is a disconnect between:

• Revenue recorded in the accounting system
• Cash received in the bank

This gap is where most Proof of Cash issues arise.

Two Approaches to Handling Payment Processors in Audit Sight

Audit Sight provides flexibility depending on the data available.

Approach 1: Treat the Payment Processor as a Bank Account (Preferred When Statements Are Available)

If processor statements (or transaction exports) are available:

👉 Upload the payment processor as a bank account

Why This Works Best

• The processor becomes a separate cash account
• You gain visibility into:
  • Gross receipts
  • Fees
  • Net payouts

Flow Representation

• Customer payments → recorded in processor “bank”
• Processing fees → recorded as outflows
• Transfers to operating account → treated as inter-account transfers

Benefits

• Full transparency into gross vs. net activity
• Cleaner identification of:
  • Processing fees
  • Timing differences
• Strongest alignment with actual cash movement

Approach 2: Treat the Payment Processor as Undeposited Funds (When Statements Are Not Available)

If processor-level detail is unavailable:

👉 Map processor-related accounts to “Undeposited Funds”

How This Works

• Revenue is recorded when earned
• Cash is recognized only when deposits hit the bank
• The system calculates the change in Undeposited Funds as a reconciling item

Audit Insight

This approach effectively:

• Bridges the gap between gross revenue and net deposits
• Captures the timing lag and batching behavior of the processor

Common Reconciling Items in E-Commerce

Regardless of approach, certain reconciling items are expected and should not be treated as anomalies.

1. Operating Expenses -> Payment Processing Fees

These are the most common and important reconciling items.

What’s Happening

• Revenue is recorded at gross sales value
• Cash received is net of fees

Example:

• Sale: $100
• Processing fee: $3
• Cash deposited: $97

Audit Sight Impact

• The $3 difference appears as a reduction in cash vs. revenue
• Typically classified as:
  • Merchant fees
  • Credit card fees
  • Payment processor fees

👉 Expect consistent negative reconciling items tied to fee accounts

2. Timing Differences (Batching & Settlement Delays)

Payment processors do not always pay out immediately:

• Daily batching
• Weekend delays
• Rolling payout schedules

Impact

• Revenue recognized in one period
• Cash received in another

👉 Appears as timing difference in the work paper.

3. Customer Refunds and Chargebacks

E-commerce businesses frequently issue:

• Customer refunds
• Dispute-related chargebacks

Impact

• Cash outflows as reduction of revenue.

👉 Appears as revenue adjustments and adjustments to cash outflows.

4. Sales Tax / Platform Withholdings (Additional Consideration)

Depending on the platform:

• Sales tax may be collected but not remitted to the company
• Certain marketplaces may withhold amounts

Impact

• Gross sales may not equal cash inflows
• Differences may not be true “fees” but pass-through obligations

👉 Appears as revenue adjustments and adjustments to cash outflows.

Why Proper Treatment Matters

1. Avoid Misinterpreting Net Deposits as Revenue

Without proper handling:

• Net cash deposits may appear understated
• Revenue may appear overstated relative to cash

2. Reduce Grossed up Reconciling Items

Improper mapping often leads to:

• Multiple reconciling items for the same transaction

Summary Guidance

Final Takeaway

E-commerce businesses don’t have a simple revenue → cash relationship.

Instead, cash flows through intermediary systems, introducing:

• Fees
• Timing delays
• Net settlement mechanics

Audit Sight is designed to flex around these realities:

• Use the payment processor as a bank account when possible for full visibility
• Use Undeposited Funds when detail is limited
• Expect and understand fees and timing differences as normal

When configured correctly, Proof of Cash will:

• Tie cleanly
• Reflect economic reality
• Provide meaningful insight into cash conversion