Handling returns and complaints in an online store: How to effectively manage the process in e-commerce?

Returns and complaints are an inevitable part of e-commerce. In today’s competitive online market, entrepreneurs must not only focus on acquiring new customers but also on effectively managing after-sales processes. Proper handling of returns and complaints is crucial for maintaining business profitability and building customer loyalty. In this article, we will discuss how e-commerce businesses can manage these processes effectively to minimize financial and operational risks.

Returns in e-commerce – Challenges for sellers

Returns are much more frequent in online shopping than in traditional retail. The reasons for returns can vary, from product mismatches with customer expectations to damages during transport or incorrect orders. The key challenge for sellers is to correctly register returns in their system and quickly and transparently conduct the process, which includes:

• Accepting the return – The customer must have clear instructions on how to return the product, including access to a return form and detailed procedures.
• Verification of the product – Once the returned product is received, it must be checked to see if it meets the return conditions (whether it is in original condition, with full packaging, etc.).
• Accounting for the return – The return should be entered into the accounting system, where it is recorded as a reduction in revenue and potential logistical costs related to handling the return.

Complaints – Processes and seller’s responsibility

Complaints are a more complicated process, often involving defective or non-conforming goods. In many countries, the seller is obligated to resolve the customer’s claim within a specified time frame (commonly 14 to 30 days). If the seller fails to do so, the complaint is often automatically deemed justified.

The seller can:

• Accept the complaint and replace the product – If the complaint is valid, the seller may replace the defective product with a new one.
• Repair the product – If the product can be repaired, the seller should offer this option within an agreed time frame.
• Refund the money – If replacement or repair is not possible, the seller should refund the customer. This refund must also be properly recorded in the accounting system.

Accounting and tax considerations related to returns and complaints

Handling returns and complaints also involves the need to properly record these transactions in accounting records and tax filings. A seller who receives a product return must update their accounting books, considering the following aspects:

• Revenue adjustments – Accounting for a return results in a decrease in revenue, which must be reflected in the financial documentation, often through issuing a credit note or adjusting the sales records.
• VAT or other sales tax – In many jurisdictions, when a return is processed, it is necessary to adjust the VAT or sales tax, which may involve reducing the taxable amount. If the return occurs after tax filings have been submitted, a corrected tax return may be required.
• Costs associated with return handling – Besides direct returns, the seller must also account for additional costs such as logistics fees, warehousing, or disposal of damaged goods.

Recordkeeping of returns and complaints in online stores

Sellers are generally required to keep detailed records of all returns and complaints, especially when dealing with consumer transactions. The documentation typically includes the date of sale, product details, date of return, transaction value, and the amount of tax refunded. It is essential for sellers to maintain this documentation for transparency and in case of audits by tax authorities.

Returns and complaints in B2B transactions

In B2B (business-to-business) transactions, the return or complaint process often differs from that used for consumer transactions. The key document in such transactions is the invoice, which confirms the sale. If a business customer returns a product, it is often necessary to issue a credit note to adjust the original transaction.

It is important to note that the buyer’s confirmation of receipt of the credit note may be required for tax adjustments in some jurisdictions. Without this confirmation, the seller might not be able to reduce their tax liability.

Process automation – The key to efficiency

In e-commerce, where operations can scale to hundreds or even thousands of transactions per month, automating the processes related to returns and complaints is essential. Modern ERP (Enterprise Resource Planning) and RMS (Return Management Systems) can significantly streamline the process, reduce the risk of errors, and save time.

Summary – Building trust through transparency

Effective management of returns and complaints not only impacts operational costs but also influences a company’s reputation. Customers appreciate sellers who offer a simple and clear return process, which fosters loyalty and trust. For example, providing clear return policies on the website and regularly updating the customer on the status of their claim can significantly improve customer satisfaction.

Proper management of returns and complaints in e-commerce is essential for maintaining financial fluidity and building long-term customer relationships. With the right tools and process automation, businesses can efficiently handle these issues, minimizing losses and increasing customer satisfaction.