The E-Commerce Payout Paradox: Why Current Terms Are Unsustainable

As e-commerce grows, traditional payout structures are becoming increasingly obsolete and ineffective, leading to inefficiencies and financial strain due to delayed and fragmented payments. Today’s discussion will explore the impacts on cash flow, vendor relations, and overall business health, while presenting innovative solutions for more efficient, timely, and sustainable payout processes, and explaining why current terms are unsustainable.

To gain insights into this theme, I spoke with Ishtvan Torpoi, a seasoned affiliate and digital marketing expert. After working as an Affiliate Specialist at digital agencies for 8 years and nearly 2 years of freelancing, he founded TAG Affiliate Marketing Agency in December 2023. The agency provides account audits, campaign management, and strategy consultancy across B2B, fashion, health & beauty and other industries.

Ishtvan has consistently enhanced campaign performance and built strong client relationships, making him a valuable asset for any organization looking to improve its affiliate marketing strategies. He still freelances for select brands to avoid losing the nitty gritty skills and insights of the affiliate industry.

Q1: Hi Ishtvan, and thank you for joining me today. To start our conversation, could you please elaborate on the current payout terms in the e-commerce sector and why you believe they are unsustainable? Additionally, what are some of the key challenges that businesses face due to these terms?

A1: Hi Rubi, thank you for having me; it’s a pleasure. That’s a great question. I particularly like this topic because it’s one that still hasn’t been solved, despite its significant impact on affiliate program performance. One of the biggest challenges is the long processing times for pending sales commission validations. It frequently happens that brands validate pending commissions 60+ days after they were first recorded. So for example, a recorded commission on the 1st of July can get validated at the beginning of September. This happens because brands have to wait 30 days for the customer return policy to expire, and it’s easier to bundle all conversions from a single month together, then wait out the 30-day grace period. For brands with a 14-day return policy, they could validate on the 15th of the next month (so August in this case).

Affiliate networks have a routine for invoicing the brand based on validated sales in a given period. This process differs per network. After the validations, the brand receives the invoice and has to pay it before the publishers can get paid. If the network pays publishers in advance, there is no issue. But if the brand does not pay within the invoice terms for the next payout round towards publishers, publishers have to wait another month.

The main issue for brands: The invoicing cycles skew budgeting as invoices for march spend only get sent to the brand months after the month has passed. Google invoices for example. July spend can get invoiced to the brand on the 1^st of August, whereas for e-commerce affiliate programs this typically won’t be the case.

The main issue for publishers: long payout cycles. Some algorithm-based publishers like CSS or Social will need conversion validations much faster so that other platforms like Google, Meta, etc. know what they have to steer on.

Q2: Considering the challenges of lengthy processing times and delayed payouts that you mentioned, how do you envision an ideal solution for optimizing the payout process in e-commerce affiliate programs? What key features or innovations would be most effective in addressing the issues faced by both brands and publishers?

A2: Optimizing the payout process in e-commerce affiliate programs requires several parties to come together and update current processes. We are dealing with 1) a publisher requiring payment, 2) a network paying publishers but requiring payment from a brand first in most cases, and 3) a brand paying the network for the confirmed conversions so that publishers can get paid. Any delay in confirming, invoicing and paying those invoices results in a long payout term for publishers. Nobody likes to wait 6 months to get paid (yes, this happens often enough).

To keep this short and concise, here are 3 ways in which the payout process can be substantially improved and we could reduce payouts from a possible 120-180 days to as little as 7 days:

Real-time sales validations: This is something that has been available for brands for quite a while. However, most don’t use these features. It requires brands to connect to affiliate tracking platforms via APIs. This way, when a brand processes the status of a sale in their CRM, the API sends a ping to the network and automatically validates the status of the commission.

It’s nothing new, but it is a heavily underrated solution. Automatically validating sales based on a brand’s CRM is the starting point.

Improved invoicing and payments: Currently, most affiliate networks for e-commerce programs will pay publishers monthly. If we can improve the speed of validations first, we can start paying publishers more frequently. Imagine a brand now processes the sales validations automatically, meaning they get approved continuously throughout the day.

However, this means that networks would have to facilitate brand invoicing and publisher payouts with a higher frequency.

Dynamic returns & commissions: It all comes back to API connections. Not only can you send the conversion status automatically, you can do the same with the return status field as well. If a product from a certain order is returned, and another isn’t (or not yet), you can send the return status to ‘returned’ for a ‘rejected’ conversion status on that product but leave the rest of the products from the same transaction untouched. With a ‘confirmed’ return status on one product and ‘pending’ return status on another, the confirmed one can already be included in the next invoicing round.

This would allow publishers to receive their earnings for parts of transactions without having to wait for the full order to be validated. With high sales volumes, this can have a very positive impact on publisher performance.

Q3: How will a platform integrating automated invoicing, real-time data, and flexible, multi-currency payments transform the e-commerce affiliate ecosystem? Which stakeholders within the affiliate ecosystem stand to gain the most from these advancements?

A3: Honestly, APIs are the foundation to transforming the e-commerce affiliate system. They are the backbone of automation and connecting platforms for easier data processing, smoother invoice flows and shorter payout cycles. APIs for publishers serve a different purpose; they pull information from the platform to reduce manual tasks, but they don’t have an impact on the payout process. Who stands to benefit the most from the API integrations for payout process improvements?

Brands: By using real-time sales validations and automated invoicing, brands can maintain more accurate and up-to-date financial records. This reduces the administrative burden on affiliate managers for sales validations, risk of faulty sales validations, and helps free up time for more strategic and valuable work. Brands will also enhance their relationships with publishers by providing them with timely payments, which will lead to better collaboration and more effective marketing campaigns.

Publishers: They will benefit from quicker and more predictable payouts. Real-time data and automated invoicing will shorten the payout cycles, reducing the waiting time from months to possibly just days. This will improve their cash flow and allow them to optimize their strategies and invest in higher-quality traffic, leading to better campaign performance and higher ROI for advertisers (remember, this is even more important for algorithm-based publishers). If the brand’s offer is good, and the payout cycle is reduced from 120 days to let’s say 30 days; publishers will prefer promoting your brand over a competitor that still has 120 days payout cycles.

Affiliate Networks: These tracking platforms and networks facilitate the API connections, but must also increase the invoicing and payout frequency from their end if brands e.g. want to switch from monthly payments to weekly payments. Watch out for platforms that don’t offer weekly payouts even though you as a brand have the capacity to connect API endpoints and pay affiliate invoices every week. Additionally, offering multi-currency payments can attract a broader range of international publishers and advertisers. A lot of affiliate platforms already offer custom payout cycles and multi-currency payments, but traditional affiliate networks might need extra convincing as they have default monthly payout cycles and less flexible multi-currency payment options.

To summarize; brands and affiliate platforms have to connect APIs in order to speed up the sales validation & payout process. Publishers benefit the most directly, whereas brands and affiliate platforms will benefit shortly after (brands will see if in their program performance and networks in their earnings). Everybody benefits if this is done correctly.

Thank you, Ishtvan, for your time and for sharing your expertise. Your insights will undoubtedly be invaluable to our readers as we collectively strive for a more efficient and sustainable future in affiliate marketing.