5 Things to consider when starting an online store.
I’m often asked for advice by small and medium sized businesses in Israel who want to start up ecommerce so here are the top 5 things to consider when starting an online store in the form of questions and answers:
- Legal: How do I protect myself against claims against me from unsatisfied customers.
- Taxation: How do I minimize any exposure to foreign taxation on my activities.
- Financial: How do I minimize my operational costs.
- Logistical: What is the most efficient way of getting the products to the customer and providing after sales service.
- Web site technology: How do I set up my website to use credit card payment gateways and how can I support multiple languages and currencies?
A simple answer is that there is no problem to set up a website, to accept credit card payments through either paypal or an Israeli credit card gateway, and to ship directly from here. A more complex answer depends on where you are doing business, what the revenue is likely to be from each country and what the nature of the products/services is that you are selling. To touch on each of the above 5 questions:
The lawyers always tell us to look at the worst case scenario which in the case of ecommerce usually relates to a disgruntled customer. It is advisable to do business abroad as a limited company rather than as an osek morshe/patur. This helps limit your liability and also projects a more serious image of you and your business. You should also have terms and conditions on your website which describe your responsibility to the customer and his to you. You can optionally have the customer click on a check box that he accepts these conditions. These terms and conditions should declare that in the event of a dispute, jurisdiction falls within the laws and courts of the State of Israel. It will usually not be worth while for anyone to go to the effort and expense of coming to Israel to fight their claim although local laws may allow them to challenge you in their own country!
Depending on which country you are selling in, there may or may not be potential issues of taxation. There are tax treaties which cover many of the countries which you may be trading in and in general, if you choose not to store inventory in these countries, and send directly from Israel, there is very little chance of there being a problem. In the event that you have a large number of shipments to a given country or you choose to use a local warehouse/fulfillment center, there will be taxation issues to consider. In particular, you may be asked to register for VAT purposes in the EU and you will need to be careful in the USA that you are not subject to any income or sales tax events.
To maximize profitability, you must make sure that credit card fees in particular are as low as possible. The monopoly of the credit card companies in Israel means that to accept foreign credit cards, they will each ask you for a ~ $10,000 security deposit. This is not a check that they hold on to and may use as security in the future but rather hard cash that you hand over to them and they keep hold of in their account for as long as you are using Cal, Isracard or Leumicard to clear the payments. The only other option is Paypal which has higher fees and which may limit the amount you can draw down into your Israeli credit card account each month. If you do choose the local credit card route, you will also need to connect your website to the credit card company via a gateway. There are a number of gateway suppliers in Israel. I use GB Premium but there are many including Tranzilla and Pelecard and Netpay offers a service which combines the gateway and the clearing.
Depending on what you sell and in what markets/countries you sell, you may want to consider using a fulfillment center closer to your customers. You can ship stock out once a month or 2 by sea to minimize shipping costs and then fulfill orders at whatever speed the customer desires by sending instructions on a daily basis to the fulfillment center. In all cases, you need to be able to accept returns, deal with shipping losses/damage and be able to answer the phone to customer queries. I have a fulfillment center in New York State and will soon be working with one in the UK and mainland Europe. Sending packages via Israel Post EMS is fairly painless and cost-effective but will not provide you with the ability to respond/ship quickly and its fair to assume that customers won’t want to return unwanted/damaged goods to Israel.
Web Site / Technology
The technology you use for your website must clearly be able to integrate with your payment gateway. In the case of Paypal, everyone on the planet has a Paypal module, but if we are talking about the options for clearing with Isracard, Cal etc the options are much more limited. The ecommerce sites I run are multi-lingual and multi-currency. Most hosted solutions (Shopify, Go Magento, Pinnacle, Volusion, Core Commerce etc.) are very US oriented and don’t easily support international sites. Open source ecommerce technology (Joomla, Drupal, WordPress, Magento, Prestashop) can be customized to meet your every need but the effort involved in each one differs, as does their complexity/ability in providing the level of marketing required to engage customers and ensure you make sales. The local gateway companies have developed modules/plug-ins for some of these but levels of support differ.
If you have any questions on the above or would like more information or assistance, please drop me a line. I specialize in helping companies market their products and services abroad.