How to effectively manage customer returns and supplier returns
Accurate, auditable returns processes protect revenue, reduce rework, and prevent faulty goods from being reshipped or from occupying valuable warehouse space. Regardless of the industry you are in, having a structured approach to handling returns is essential.
A professional returns program balances customer experience with cost control by standardising how returns are received, inspected, recorded, routed, and closed out in both Jiwa and supplier channels.
Core Workflow to effectively manage returned goods
- Customer Incident – Sales representative or customer service officer
- When a customer has reported faulty, damaged or unwanted goods, a customer incident is created in Jiwa. The order number is documented along with details regarding the faulty item(s).
- A credit note should be created for the customer with the order number and faulty or unwanted item flagged.
- The item should be returned to the warehouse for inspection.
- Warehouse Management – Warehouse manager or staffer
- The items are received to a dedicated quarantine area in the appropriate warehouse. It is entered into Jiwa’s inventory management module as a stock transfer.
- It should either be placed in a returned goods or damaged goods logical warehouse pending inspection.
- Inspect against a documented checklist (condition, completeness, serial numbers, cosmetic damage).
- Record inspection outcome in the system: Restock, Repair, Credit to supplier, Scrap, or Return to customer.
- Supplier Returns – Procurement/supplier relations team
- The team will create a Supplier returns request (if required) to indicate the item(s) are needing to be returned. The supplier needs to approve and issue an RA number to attach to the return entry.
- A supplier returns shipment is created if the item(s) are being returned to the supplier.
- Finally, a supplier return credit is created to cover the cost of the faulty goods.
- Reconciliation – Finance department
- The refunds and credits are reconciled by the finance department
Recommended best practice for each step in the workflow
It’s essential that each employee understands the importance of thorough documentation. This is the case for all stages in the workflow as incorrect or poor documentation in one step can adversely impact the next, resulting in embarrassing mistakes or lost opportunities to have supplier items refunded.
Customer request and tracking the return
- Capture order number, SKU, reason for return, photos (if available), and preferred outcome (refund, repair, replacement).
- Ensure all of the above information is documented in a Jiwa customer incident.
Inbound receipt and quarantine
- Receive returns to a dedicated quarantine area in the warehouse; do not mix with sellable stock. Having both returns and damaged logical warehouses helps ensure items are quarantined effectively.
- All returned items are initially moved into returns, waiting to be inspected. Items that are determined to be damaged are moved to the damaged warehouse waiting to be returned to the supplier or repaired if appropriate.
Inspection and disposition
- All returns should be inspected and all inspections documented.
- Inspect against a documented checklist (condition, completeness, serial numbers, cosmetic damage).
- Record inspection outcome in the system: Restock, Repair, Credit to supplier, or Scrap.
Routing and action
- If the items are in a condition to be returned back into stock, a stock transfer is created and the items are moved to the appropriate location.
- If the items are damaged or faulty, they should be transferred to the damaged goods logical warehouse.
- If the inspection indicates the item is supplier-creditable, prepare a supplier return using Jiwa’s Supplier Returns module.
- If repairable, create a repair order and track progress and costs.
Close-out and reconciliation
- Update financial records (refunds, credits, repair costs) and inventory counts.
- Reconcile any returned items weekly to ensure no open returns are forgotten.
Tracking in systems and warehouses
In-system tracking
- Use what is recorded in Jiwa as the single source of truth: every step, inspection note, photo, and disposition must be logged. This prevents duplicate or lost records and supports audit trails.
Warehouse handling
- Physically segregate returned items and label them to indicate its returned status.
- Always update the inventory item in Jiwa so it reflects real-time location and status. This reduces the risk of faulty goods being shipped again or sitting unaccounted for in storage.
Data fields to capture (at a minimum)
- Original order number; SKU/serial; customer reason; photos; inspection result; disposition; handler; timestamps for stock movements and inspections; supplier RA.
Returning items to suppliers
Supplier returns can come about before items are even purchased by customers. This is why having effective procedures in place for inspecting goods as they arrive from a supplier, and dealing with supplier returns is so important. Jiwa has a three step process for dealing with supplier returns – although not all three steps are required each and every time.
Each step in this process can be managed in Jiwa’s supplier returns module, making it simple and trackable.
- Supplier return request – To notify a supplier of an intent to return, replacement request, or pricing credit for faulty goods (this step is optional depending on your established relationship and agreements with the supplier)
- Supplier return shipping – This form is created in the warehouse where the stock is being held. Once the Shipping is activated it creates a journal and a Warehouse Transfer Out behind the scenes.
- Supplier return credit – This will create a credit in the supplier record, making it easier for the financial tracking of all costs and credits associated with any return.
Supplier Return Codes
Return Codes are created to attach to the physical inventory items that credits are being claimed for or tracked or goods exchanged.
Return– reduces stock on hand, creates a credit in the creditors account, inventory and creditors ledger accounts are updated. Any pricing difference between the cost of the stock and credit being claimed is posted to the cost price adjustment account
Exchange – reduces and increases stock on hand when the items are shipped and exchanged. Journal entry impacts the inventory ledger only
Short Delivery – reduces stock on hand when items are shipped. Journal impacts inventory and creditors ledger
Pricing Difference – unit cost on the stock on hand records are updated. Journal impacts the inventory and creditors ledger. Pricing difference is posted to the cost price adjustment account
Short Delivery (Tracking) – no impact on stock or the ledger
Pricing Difference (Tracking) – no impact on stock or the ledger
Review returns data
Simply processing returns effectively is not enough. Reviewing the macro data of returns is important to identify any trends that are avoidable. Returns do cost money so reducing the likelihood of returns will help with that profit margin in the long run.
Key metrics to monitor
- Return rate by SKU and supplier
- Average time to disposition (receipt → inspection → decision)
- Percentage of returns restocked vs repaired vs credited
- Cost per return (handling, repair, freight, lost sales)
Consider: Is a particular item, or supplier, causing significant returns? You may want to evaluate whether the particular item or supplier is the appropriate fit for your business. If you would like more information on how to minimise customer returns, read this article.
Common pitfalls
There are many issues that can come about if returns aren’t managed strategically. Be aware of these common pitfalls that can ultimately have significant costs associated when not managed properly.
Common mistakes
- Returning items to stock without inspection or status flags.
- Failing to link customer order to items in the returns or damaged goods warehouse.
- Poor documentation of inspection outcomes and photos.
- No ageing or escalation process for unresolved supplier credits.
A Quick Checklist
- Flag the item in Jiwa for every customer return with full order and complaint details.
- Quarantine returned goods in a dedicated logical warehouse.
- Log every touchpoint to Jiwa so the item is traceable and the reasons for the return are well documented.
- Photograph damaged items and attach them to the customer incident report in Jiwa.
- Link supplier RA number to the original customer sales order and track credits.
- Reconcile inventory and finance before closing the returned item in the system.
- Report on return KPIs regularly and act on trends.