There has been a phenomenal surge in drop-shipping businesses across the world. The internet boom brought about a change in the way people do business. Becoming an entrepreneur is now super easy! By partnering with a subscription platform like Shopify, BigCommerce, WooCommerce and Magenta, anyone can have an online running business in no time. These platforms will give entrepreneurs a website infrastructure to get started immediately.
Convenience is the main reason for an increasing number of people wanting to become drop-shippers. The following three main factors contribute to this expediency of becoming a businessperson:
- No responsibility for inventory – As a drop-shipper, you are not responsible for stocking and managing inventory. The drop shipper outsources most of the business to a distributor or retailer who is in charge of the supply chain. The drop-shipper just needs come up with an appealing brand and make sure the products or services are marketed effectively. Inventory management and supply chain are the responsibility of the distributor or retailer who must ensure the customer receives the correct, good quality product in a timely matter
- No responsibility for shipment or tracking: The drop-shipper is also not responsible for the shipment of the orders to the customer. That is the job of the distributor or retailer. Their sole responsibility is to manage the online storefront. Shipment and tracking of the order are not a part of their to-to list.
- Workflows are automated: Like other aspects of the business, the drop-shipper is spared of the need to carry out operational tasks like sales reporting and email marketing. Emails can be automated with customers being notified of their order confirmations, refunds and cancellations. Since workflows are automated, the drop-shipper can focus on growing the business and coming up with new sales ideas.
The convenience of starting a drop-shopping business makes it a tempting proposition for budding entrepreneurs. However, it is the very expediency of initiating a drop-shipping business that makes running it even harder. It leads to the creation of a number of factors that contribute to making the drop-shipping industry a high-risk one. Some of those factors are given below:
- No inventory or quality controls: As stated above, the drop-shipper does not have access to products. Therefore, they cannot vouch for its quality or availability. At times, a customer may not receive an order due to non-availability of the product or they may receive something that was not ordered.
- No tracking of order: Since the warehouse or distributor is responsible for dispatching the product to the customer, the drop-shipper has no way of tracking the order in case the customer reaches out to ask when it would be delivered. This may upset the customer.
- No documentation: The drop-shipping industry is notorious for fraudulent merchants who provide fake names, website and address to set-up their business. The bank proof provided by these merchants to banks can also be false at times.
- Strong competition: As it is very easy to get into the drop-shipping business, many aspiring entrepreneurs have started their own online businesses. This makes the drop-shipping industry very competitive. Entrepreneurs need to ensure superior product quality and customer service to succeed and make profits.
- Chargebacks: Since this industry is rampant with fraud, banks receive a huge number of requests for chargebacks. Large, established banks may see this as a nuisance
- Low profits: The drop-shipping industry is still in its nascent stages and businesses are still learning to excel at their game. Therefore, they may not make huge profits early on making them less lucrative proposals for big acquiring banks.
- Product returns are difficult: Customer requests for returns and refunds may be difficult for new drop-shippers because they do not manage products and order tracking themselves. Customers might be displeased and leave bad reviews online.
All these factors make the drop-shipping industry a high risk one. Traditional banks may be sceptical of providing services to businesses in this industry due to the reputational risk involved. Conventional financial institutions do not want to be associated with taboo.
But no need to worry. There merchant account providers that specialize in merchant services for drop-shipping businesses and CutPay is one of them.
Let CutPay Help You!
We at CutPay understand the needs and requirements of drop-shipping businesses. We hope these tips from us help you in running your business.
If you want to apply for a merchant account for a drop-shipping business, you have come to the right place.
Just fill out the form below and give us some details about your business and one of our representatives will reach out to you shortly!