As we all know, customers don't always
return goods that they are authorized to return. Sometimes they don't even
return what we sell. So how do you control returns?
In a busy warehouse, returns are often received, maybe recorded, and put aside until somebody can check out the merchandise. The problem is that the credit department doesn't know whether they can authorize a credit to the customer, since they don't know what has been received. And the goods are in limbo until somebody does check them.
A better and simple approach to controlling returns is as follows:
Create a virtual warehouse in your inventory system called ?Returns.? This is a holding warehouse that cannot ship goods. Rather it is created to receive goods and then transfer them to the main warehouse when inspected.
As goods are received, log them in and record them in the Returns warehouse. At this point, the goods can merely be recorded as received in total, i.e., if the customer has a Return Merchandise Authorization (RMA) authorizing them to return 48 pieces, record the receipt as 48 pieces. The actual count will be verified later. Also, the returns reason code will be recorded later when inspecting.
Physically move them to the Returns warehouse, i.e., a section set aside in the main warehouse to hold returns.
A policy should be established to check merchandise not later than 24 hours from receipt. This gives the credit department the proper information to allow them to issue a credit.
When time permits (not later than 24
hours from receipt), check the returned merchandise to see if:
It is not unheard of for a customer to send back a radio or toaster to a company that only sells apparel. It is not uncommon for a customer to send back more than what was authorized, i.e., they clear their floor of merchandise that does not sell (in the case of a wholesaler selling to a retailer).
If the customer returns more than what
was authorized, a decision has to be made:
If a customer returns what you do not sell (e.g., the toaster or radio), the customer needs to be called to alert them of the error. In some cases the customer doesn't care, and will require that you give them credit anyway. You need to analyze the customer and decide what to do.
If the goods are damaged, you need to
decide who caused the damage, and, if caused by the customer, you need to
decide whether to approve the credit request. Obviously the relationship
with the customer will dictate this decision.
Once the goods have been examined, the following must happen:
The credit department must be told of the status of the returns, i.e., fit for resale and authorization approved.
A code must be recorded in the system to determine what type of return, e.g., damaged goods (customer damaged), damaged goods (from supplier), refused, not able to collect (for CODs), etc.
The goods must be put away for resale:
Some companies charge a return stocking fee
(usually 15% of the sale), which covers the cost of this handling procedure.
Returns should be recorded separately in the financial statements. You must have a general ledger account in the P&L section called ?Returns? and the returns received must be posted to returns, and not be shown as a net reduction of sales. At the end of the year, you want to analyze returns, and try to determine where you are having problems, and correct them.
For example, if you find that 40% of your CODs are being returned, you may not want to offer COD shipments (credit cards may be a better approach). Or if the goods are damaged because of the supplier, it may be time to find another supplier. Keep in mind, a reduction in returns goes straight to the bottom line.
About the author. George Matyjewicz, PhD is the Chief Global Strategist and a principal of GAP Enterprises, LLC. GAP Enterprises, LLC is a professional firm of marketing and management Solutionists whose charter is to provide unique and innovative marketing and information solutions to owners and managers of companies worldwide. We provide direction, common sense advice and "hands on" guidance in programs designed to optimize your strategic direction. http://www.gapent.com/