Returns in distribution are not just an operational nuisance — they are a margin leak and, when handled poorly, a relationship accelerant in the wrong direction.
Three Categories of Returns
Damage in transit: you own it, full credit, no questions. Document with a photo before the driver leaves and issue a credit memo same day. Quality issues at source: same credit to the client, then pursue your supplier for a return allowance. Client-error returns: this is where your written policy matters. Perishables accepted and refrigerated cannot go back. On durable goods, restocking fees of 15–20% are standard.
The Credit Memo Process
Issue credit memos within 24 hours of a confirmed return, always with reason codes: Carrier Damage, Quality Defect, Client Order Error, Short Ship, Wrong Item Sent. Apply credit memos to the client's next invoice automatically. Reason codes let you run reports and find systemic problems.
Using Return Data to Spot Problem Accounts
Run a return rate report by account quarterly. A healthy return rate is under 1–2% of line items. An account at 6% return rate is ordering speculatively or using returns as a de facto credit line. High return rate plus slow payment is a serious warning signal — this account is costing you more than they're worth.