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Amazon Seller Attorney Explains Amazon’s Drop Shipping Policy 

Wed Aug 31, 2022 Amazon Tips

Drop Shipping on Amazon is often marketed by consultants, influencers, and so-called Amazon “experts” as an easy and quick way to start selling on the marketplace. We understand the allure of the drop shipping model as it spares sellers from the hassle of one of the most challenging aspects of building an Amazon business, that is dealing with the logistics of inventory, storage, and fulfillment.  

But before jumping into drop shipping on Amazon, sellers must make sure to fully understand the Amazon Drop Shipping Policy to avoid an account suspension and other nasty consequences. Our Amazon Seller Attorney at ESQgo® explains how drop shipping works, what is required under Amazon’s policy, and the common mistakes sellers make under this model. 

What Is Drop Shipping? 

Drop shipping is an order fulfillment option wherein an Amazon Seller outsources storage and fulfillment of products to a third party. Under this business model, the Amazon Seller is responsible for maintaining the online store, taking orders, placing those orders with the drop shipper, and managing customer service. The rest of the physical fulfillment process is out of the Amazon Seller’s hands and handled by the third party company.   

A typical drop shipping process follows this general sequence: 

  1. Amazon Seller signs agreement with drop shipper. 
  2. Customer orders from the Amazon Store. 
  3. Amazon Seller receives order. 
  4. Customer receives an order confirmation. 
  5. Amazon Seller forwards the order to drop shipper. 
  6. Drop shipper ships the order. 
  7. Customer receives the product. 

Amazon Drop Shipping Policy 

For Amazon Sellers, using a drop shipping service is generally allowed as long as you are the seller of record and identify yourself as such. Unless this requirement is met, Amazon prohibits drop shipping on their platform.  

In other words, drop shipping on Amazon is only permissible when the Amazon Seller is identified as the seller on all invoices, packing slips, external packaging, and any other information included or provided with the product sent to customers.  

Sadly though, most Amazon Sellers who are using the drop shipping model do not fall under this category. For this reason, Amazon’s Drop Shipping Policy further clarifies this prohibition by providing examples of drop shipping practices that are not permitted on the marketplace, such as:  

  • Purchasing products from another online retailer and having that retailer ship directly to customers, if the shipment does not identify you as the seller of record or if anyone other than you (including the other online retailer) appears on packing slips, invoices, or external packaging, it is strictly prohibited without exception; or 
  • Shipping orders with packing slips, invoices, external packaging, or other information indicating a seller name or contact information other than your own is also strictly prohibited. 

5 Common Drop Shipping Mistakes Amazon Sellers Make 

In our practice, we see many Amazon Sellers flagged for violating the Amazon Drop Shipping Policy and there are five common errors that we have observed.  

1. Drop Shipping from Another Online Retailer

Purchasing products from another online retailer like Walmart, eBay, Shopify, Sam’s Club, or Home Depot and having the items shipped directly to your customers is absolutely prohibited. Under this model, the packing slips, invoices, and external packaging received by your customers will show the online retailer (not you) as the seller of record thereby creating confusion for the customer about how their order is being fulfilled and whom they should contact for any problems or questions. If a contractor or third party company recommends this form of drop shipping, you can be certain they do not have your best interest in mind as this is a sure way to get selling privileges revoked.  

2. Submitting False or Recycled Tracking Information to Amazon or Customers

One of the advantages of using a drop shipping model is scalability because leveraging suppliers can make it feasible to accept more orders without increasing the inventory you store, package, and ship. As a result, most Amazon Sellers who shift to a drop shipping model will see a significant spike in sales volume which may result in a sales velocity review or inventory management issues. When this happens, some Amazon Sellers provide Amazon or customers with inaccurate tracking numbers in an attempt to hide their illegal drop shipping practices. Amazon will consider this as fraudulent or deceptive behavior, and it will not be taken lightly.   

3. Not Fulfilling Orders After Confirming Shipment

Up-to-the-minute updates on what is available in stock may not be possible when using the drop shipping fulfillment option. When a customer places an order, you may find that the product is out of stock. Amazon Sellers who don’t pay close attention will confirm shipment of the order before realizing that the product is out of stock thereby placing them in a situation where they are unable to fulfill said orders. Again, Amazon considers this as fraudulent or deceptive behavior.  

 4. Not Having Valid or Verifiable Invoices to Support Product Authenticity

When inauthentic product allegations arise, Amazon Sellers are required to submit valid and verifiable invoices to support their supply chain and prove product authenticity. However, purchases made through an online retailer like Walmart, eBay, Shopify, Sam’s Club, or Home Depot do not come with invoices that meet Amazon’s requirements or may not come with invoices at all. This places Amazon Sellers in a position where they are unable to provide acceptable proof of authenticity for their products which results in an account suspension, among other things. 

5. Failing to Follow Through on Promises After Your First Violation

Amazon Sellers who are flagged for violating the Drop Shipping Policy may face account suspension. To reinstate the account, Amazon Sellers are required to submit a plan of action explaining why and how they violated Amazon’s policies, what corrective actions were implemented, and what preventive measures will be undertaken to prevent the same violation from happening again in the future. Based on specific promises of corrective and preventive remedies outlined in the plan of action, Amazon may decide to reinstate selling privileges. Therefore, Amazon Sellers are responsible to follow through on promises made when appealing a drop shipping violation. If you are flagged for the same violation a second time, account reinstatement is unlikely. Sadly, this happens far too often.   

What Happens When You Violate Amazon’s Drop Shipping Policy? 

Violations of Amazon’s Drop Shipping Policy may result in the following: 

Suspension of Your FBM privileges

Under Amazon’s Drop Shipping Policy, policy violations may result in the restriction of your ability to sell using Merchant Fulfilled Network (MFN). In such cases, the seller account remains active, but you can only fulfill orders using Fulfillment by Amazon (FBA). 

Temporary Account Suspension

Because the actions prohibited in Amazon’s Drop Shipping policy are also disallowed under the Selling Policies and Seller Code of Conduct, such offenses can also result in the suspension of your selling privileges under Section 3 of the Amazon Services Business Solutions Agreement (BSA). 

Funds Withheld

When Amazon deactivates a seller account, the Amazon Seller’s funds are typically withheld for the purpose of settling any outstanding transactions, including product returns or refunds, A-to-Z claims from customers, inventory removal costs, and outstanding fees. If the seller account is reinstated after successfully appealing the violation, funds will be released and disbursed according to the Amazon Seller’s disbursement schedule. However, if the account is not reinstated 90 days from when the account was deactivated, the Amazon Seller may separately request funds disbursement by contacting the Disbursements Team and Amazon will conduct a separate investigation to evaluate the account for abusive, fraudulent, or other prohibited activity. If Amazon finds that the Amazon Seller engaged in deceptive, fraudulent, or illegal activity, abused their systems, or repeatedly violated their policies, Amazon may permanently withhold some or all funds in the account in accordance with Section 2 of the BSA, which states:  

 “If [Amazon] determine[s] that your account—or any other account you have operated—has been used to engage in deceptive, fraudulent, or illegal activity (including the sale of counterfeit goods), or to repeatedly violate [their] Program Policies, then [Amazon] may in [their] sole discretion permanently withhold any payments to you.” 

Permanent Account Termination

As a condition to selling in the marketplace, Amazon Sellers accepted the BSA and agreed to comply with its terms and incorporated policies, including Amazon’s Drop Shipping Policy. When an Amazon Seller repeatedly violates said policies, Amazon is well within its rights to terminate the seller account and refuse to release the funds rightfully retained in accordance with the above policies. This is perhaps the most important reason for writing this article as we do not wish to see more Amazon Sellers suffer this consequence. 

How To Make Sure Amazon Drop Shipping Works For Your Business 

The drop shipping model commonly appeals to entrepreneurs seeking efficiency and low overhead, but it can come at a cost. To ensure compliance with this policy and fulfill orders using a drop shipper, as an Amazon Seller you must: 

  • Have an agreement with your supplier that they will identify you (and no one else) as the seller of your products on all packing slips, invoices, external packaging, and other information included or provided in connection with the products; 
  • Remove any packing slips, invoices, external packaging, or other information identifying a third-party drop shipper prior to shipping the order; 
  • Be responsible for accepting and processing customer returns of your products;  
  • Closely monitor customer experience, reviews, and feedback; and 
  • Comply with all other terms of your seller agreement and applicable Amazon policies. 

Speak With An Amazon Seller Attorney at ESQgo® 

If Amazon suspended your seller account due to alleged violations of their Drop Shipping Policy, an Amazon Seller Attorney at ESQgo® is here to help get your selling privileges back. Contact us today by calling 888-600-1925 or via our contact page. We offer a free initial one-hour consultation.