One of the biggest values that a company can receive from returns processing is that it turns trash to cash. That is to say returned product and goods that didn’t sell, are processed and are ultimately exchanged for cash that is used to buy new goods.
Many companies take the refund process for granted and never think about the related cash cycle. What they are doing by default is allowing others to keep their cash for free. A great exercise you can use to see if this is happening in your company is to complete a diagram of return items. Note the path the items takes from the time the customer is refunded until you receive payment for the item after final disposition. Document the stops, the dwell time, and the steps required to move the product down the line to when your company receives payment for the returned items.
To start off, select the top five or six items, in terms of dollars returned, for your analysis. Be sure that the average dwell time is recorded for the various items at each location. Once you’ve charted the path and noted the dwell time for each stop along the way, you will have the total days for your returns cash cycle.
If you have never done this, you will see obvious gaps and delays that can be eliminated, as well as illogical processes to eliminate. You will also see where some of your suppliers, liquidators, recyclers, or vendors are unknowingly taking advantage of the process. Once the cash flow and the returns process flow has been streamlined, you can put together a coherent returns process that your suppliers, liquidators, and other partners can internalize and comply with, resulting in better vendor relations and improved cash flow.
One company I worked with went from over sixty days out to less than forty days between the time they refunded the customer until they received credit from the OEM. The impact was to improve their cash position for 8% of their sales by twenty days. Imagine the impact this could have on your organization.