Amazon Goes Rogue, Permanently Holding Seller Funds and Inventory

Amazon is taking bold – and unjustified – actions against sellers, including permanent holding of funds and unwarranted destruction of inventory. Recent actions are the worst I’ve seen in more than a decade of working with Amazon sellers. Sellers must protect themselves.

I know the initial reaction of most sellers to hearing this kind of news. “This can’t possibly be true,” or “this could never happen to me” are normal responses. Yet Amazon Seller Performance’s increasingly bold stances reveal they are not concerned about normalcy, or fairness, or even about Amazon’s own rules.

Let’s talk about the terrible situations in which Amazon decided it was entitled to sellers’ hard-earned funds. Then, we’ll discuss the evils of inventory destruction. Finally, I’ll review the actions every seller can take to enhance the safety of their funds and their goods.

Amazon had good reasons to withhold seller funds

In the past, Amazon was slow to attach sellers’ funds. The company’s Business Solutions Agreement (BSA) does allow for permanent holds on funds, without much description of the circumstances. Typically, permanent funds holds have been few and far between.

Waves of permanent funds holds occurred in years past when Amazon cracked down on obvious policy violations:

• Sellers were engaging in disallowed drop-shipping en masse. Amazon determined that releasing funds to these sellers created long-term risk for both Amazon and its buyers. Why? Drop-shippers would take their released funds to immediately launch another prohibited drop-shipping account. By holding the funds permanently, Amazon created a disincentive for repeat offenders.
• Sellers offered items that fell under Amazon’s restricted products policies. Products such as weed grinders and vaping accessories led to account shut-downs. When Amazon returned funds, the sellers would simply rebrand and move their prohibited items to a new account. Again, Amazon began permanently holding funds to prevent these products from popping back up on its platform.

As you can see, these past funds holds had a goal and a purpose. They were specifically geared toward preventing bad actors from repeating their behaviors on Amazon.

What’s pushing Amazon’s aggressive overreach?

Today, we are seeing much more aggressive funds holds, even in cases where keeping a seller’s cash directly violates Amazon’s BSA. In the most egregious recent example, I’ve seen a suspended seller got hit hard. Fortunately, the seller was reinstated, with help from Riverbend Consulting.

The client had been suspended for six months, during which Amazon held $100,000. Once the client was back in Amazon’s good graces, their funds should have been released. Instead, Amazon swiped the money from the account and claimed they have the right to “confiscate” the funds because the account was suspended for more than 180 days.

Here are the facts:

1. Amazon’s Business Solutions Agreement does NOT give Amazon the right to confiscate a seller’s funds after 180 days of suspension.
2. If that were the case, Amazon could slow-walk any reinstatement and then swipe the cash.
3. Amazon has either badly trained or wrongly empowered associates to steal from a seller.

But this isn’t the only aggressive funds-stealing that Amazon has engaged in this year. When Amazon puts a hard block on a seller for review manipulation and related offenses, in too many cases, they are refusing to release a seller’s funds. In some cases, these funds holds are huge – from half a million dollars to a million or more.

The legal and business reasoning for these funds holds require mental and moral contortion, especially since most of these cases involve FBA sellers:

1. The sellers’ orders were fulfilled, with products delivered to buyers.
2. Any requests for returns and refunds were honored.
3. If Amazon considers these sales to be ill-gotten gains, they should refund the buyers – not attach the sellers’ funds.
4. Any argument that Amazon is using the money to fund its investigation of the seller rings hollow. If that were true, all suspended sellers would receive a bill.

Could it be that Amazon is taking this action to impress the U.S. Federal Trade Commission, which has pushed hard for suspension – and even prosecution – of those who obtain fake reviews? If so, shouldn’t these funds be part of a government fine, rather than going to Amazon’s bottom line?

$600,000 OF INVENTORY DESTROYED?

Funds aren’t the only area where Amazon has become increasingly aggressive. It also has chosen to withhold sellers’ inventory at increasing rates. But here’s the catch. Amazon’s standard for “guilt” is far from what most sellers would consider just.

Here’s a recent example. A seller stocked $600,000 in Nest thermostats at Amazon FBA fulfillment centers. Amazon initiated an investigation, accusing the seller of “unsuitable goods.” In Amazon parlance, that means that the company believes the items may be counterfeit or stolen, but they cannot prove it.

The seller provided invoices for the goods, but they could not offer a full chain of custody that traced the items back to Google. Because of this, Amazon refused to reinstate the suspended seller. But it gets worse. Amazon informed the seller that all $600,000 of Nest thermostats would be destroyed.

This seller is not alone. When Amazon deems an ASIN “unsuitable goods,” they refuse to return inventory to the seller. This isn’t based on an actual counterfeit investigation, where an expert looks at the products and determines they are fake. Nor is it based on reports of stolen goods. Amazon takes custody of all the inventory simply because the seller cannot provide a full chain of custody – something that is nearly impossible since many suppliers refuse to provide their wholesale invoices to a seller.

In all of these cases, Amazon claims the inventory is being destroyed. That is unlikely. Don’t be surprised if these “destroyed” goods show up on Amazon Warehouse Deals or are sold by the pallet out the back of an Amazon Fulfillment Center. Liquidators, Amazon sellers and dollar stores snap these goods up and relocate them to who-knows-where.

All of this begs the question: if these goods are truly counterfeit or stolen, why does Amazon get to benefit from them? The sellers aren’t being referred to the FBI for investigation. No true standard is being followed. Amazon just takes what it wants.

How sellers can fight back

So what’s a seller to do? My best advice based on today’s Amazon realities include:

1. Ensure that your suppliers will play ball if Amazon asks for chain-of-custody invoices. Explain the situation in advance: that Amazon sometimes asks for detailed documentation going all the way back to the manufacturer. If your supplier balks, they may not be a safe resource for inventory.
2. Keep all of your invoices on hand. If Amazon requests information, be ready to respond quickly.
3. Ask for FBA bin checks. If Amazon accuses you of “unsuitable goods” or counterfeit products, tell them to look at your FBA inventory. While they aren’t always willing to play ball, your willingness to have them examine your products looks good.
4. Avoid any platform manipulation or review manipulation, no matter how small. Amazon has gotten extremely aggressive in its penalties for these violations. You can’t afford them.

The good news? Riverbend Consulting is great at fighting for sellers. If you’ve gotten hit with held funds or seized inventory, give us a shout. We’d love to discuss your case and how we can assist.