Negotiating returns privileges are often overlooked by many buyers and sellers. However, studies have shown that returns can cost a company between 9% and 15% of sales. With an impact this large, nobody can afford to overlook the terms and conditions that govern product flowing back through the reverse logistics pipeline.
There are many factors that determine who pays for returns, product testing, refurbishment and transportation. Usually, it’s a matter for negotiation and there is not one set of rules to go by when working out the critical details. There are, however, some general industry arrangement that one can use as a starting point for negotiating return privileges. Those include:
- The manufacturer / OEM generally pays for freight directly or indirectly for returned assets, whether defective or recalled.
- Retailers typically deduct the cost of returns, including charges for inventory, processing and freight from any outstanding payables they have with the manufacturer.
- Liquidators, meaning buyers of product on the secondary market, generally provide their own transportation.
- Hi-tech, market dominating manufacturers will not pay consolidation or handling fees and will be much more strict when it comes to enforcing terms and conditions for returns.
- Goods returned that do not comply with previously agreed to terms and conditions are generally not returned, nor credited in any way.
- Manufacturers of commodities will pay handling fees but will expect compliance and support where customer abuse is evident.
- Often, off shore OEM’s have no place to receive and process returns. These OEM’s will often agree to allow you to liquidate their product AND cover the cost of the return. They generally don’t pay handling fees but the liquidation revenue is much higher so it is a win/win.
- Consolidation fees are paid on a percent of wholesale cost or a flat dollar amount per unit for higher priced items.
- The basis for the consolidation fees should be the cost of processing returns, not including transportation.
- Disposal fees are passed on directly to OEM’s when required by the manufacturer. This is especially true if assets have to be incinerated or dumped in a hazardous materials landfill. Disposal fees are NOT passed on for private label goods or product that the retailer or customer facing business destroys for brand protection reasons.
All these terms and many more factors involved in processing returns are negotiable so use this list as a base line to work off of when working out return privileges. If you are new to the world of return agreements, this will help get you off on the right foot so you can ensure you don’t leave money on the table while promoting good relationships between you and your partner across the table.