Payment Terms and Their Impact on Shortage Deductions with Amazon

Amazon uses Payment Terms to define when vendors receive payment based on the date an invoice is issued. These terms are outlined in vendor agreements and can be negotiated during initial Vendor Central account enrollment and annual trade negotiations.

Amazon often negotiates for longer Payment Terms and/or offers Quick Pay Discounts (QPDs). Let’s examine these terms and how they impact cash flow.

Your Payment Terms with Amazon directly impact your business’s cash flow. These terms determine the timeframe for receiving payment. In Amazon, this could be 30 days, 60 days, or even 120 days after an invoice is issued.

Longer Payment Terms can strain your finances, making it difficult to cover costs like materials, production, and shipping while waiting for payment. It’s crucial to only agree to longer terms if it benefits your business, such as negotiating for lower trading costs.

Payment Terms are broken down into either End of Month (EOM) or Net (NET) terms, each tied to a specific number of days.

This is a standard invoice payment term. 30 NET means Amazon has 30 days from the invoice date to pay.

For example, a supplier on 30 NET terms would receive payment for an invoice dated January 1st on January 31st.

For EOM terms, a payment is due at the end of the month in which the invoice was received, plus the specified number of days. This can significantly extend your wait time compared to NET terms.

For example, a supplier on 30 EOM terms means that even if an invoice is issued on January 1st, the 30-day countdown wouldn’t start until the last day of January, and payment would not be due until March 2nd.

Amazon offers Quick Pay Discounts (QPDs) to speed up vendor cash flow while reducing Amazon’s costs. In exchange for faster payment, Amazon deducts a percentage from your invoice—typically 1-3%.

For example, a supplier on 30 NET terms with a 3% QPD, may get paid by Amazon in 15 days but with 3% deducted from their total invoice amount.

While this provides quicker access to cash, it also lowers your overall profit margin, making it essential to balance payment speed with profitability.

A major issue with Amazon’s payment structure is how it interacts with shortage deductions. A shortage deduction is when Amazon claims they didn’t receive all the inventory you shipped, even if you sent the correct amount.

A supplier with 30 NET terms and a 3% QPD sends an invoice for $10,000 on January 1st. Since they’ve agreed to a Quick Pay Discount, Amazon pays early on January 16th, but deducts 3%, leaving the supplier with $9,700 instead of the full amount.

Then, on February 10th, Amazon claims a $1,000 shortage and deducts it from a future payment. In the end, instead of receiving the full $10,000, they only get $8,700—losing $1,300 (13%) due to both the QPD and the shortage deduction.

Now, let’s take a look at a more complicated, real-life example:

A supplier with 60 NET terms and a 2% QPD might expect to be paid in 30 days with a 2% deduction. For an original invoice of $19,680, they would typically receive $19,286 after the QPD discount.

However, in some cases, Amazon may initially pay only $566—about 3% of the invoice—while deducting $18,720 on the same payment. This allows Amazon to technically meet the QPD payment terms while significantly delaying the bulk of the invoice. By structuring payments this way, Amazon can retain most of the supplier’s funds for weeks or months, improving their own cash flow while still benefiting from the early payment discount.

The supplier disputes the remaining amount, but the claim is denied. Then, four days after the NET 60 due date (Day 64), Amazon finally releases the remaining $18,720. However, because this is considered a new payment, Amazon applies the 2% QPD deduction again, meaning the supplier only receives $18,346.

In the end, the supplier waits 64 days to receive only 93% of their invoice due to repeated QPD and shortage deductions.

This ongoing cycle of deductions, disputes, and re-applied QPDs makes it difficult to reconcile payments and predict cash flow. Understanding how these deductions stack up over time is critical to mitigating financial losses and ensuring your payment terms align with your business needs.

And while Amazon recommends longer payment terms (e.g., 90 days) as a way to reduce shortages by allowing more time for receipt and matching, this doesn’t necessarily eliminate shortages. Instead, it becomes a tradeoff between potentially fewer deductions and maintaining cash flow.

It’s also important to note that although QPDs are deducted each time a shortage is reversed, the total QPD amount remains the same as if it had been applied once upfront. This means Amazon isn’t necessarily profiting extra from the pay/deduct method, but the repeated deductions and repayments still create major reconciliation challenges. This makes it harder to track and predict cash flow, ultimately impacting your bottom line.

Your Payment Terms with Amazon impact more than just when you get paid—they also affect how much you actually receive. To avoid revenue loss:

SupplyPike is here to protect your bottom line, get you paid, and get you better. For more resources, visit SupplierWiki. For more guidance, contact your Customer Success Manager or support@supplypike.com.