While every retail and wholesale business wants their orders to go out perfectly every time, returns are unfortunately inevitable. Customers send products back for all sorts of reasons, from damaged items and fulfilment errors to sizing issues or unwanted purchases.
Returns policies influence buying decisions more than many businesses realise. Around 72% of UK shoppers say free returns are important to them, while over half say a retailer’s returns policy influences whether they buy in the first place.
That creates pressure for businesses to offer returns that are quick, clear and easy to manage. In this guide, we’ll explain what returns management is, how it works and how businesses can improve their processes.
Key takeaways
- A smooth returns process helps businesses keep inventory accurate, spot recurring problems with products or fulfilment and reduce the risks of fraud. It also gives customers more confidence in the business, making them more likely to buy again and recommend the brand to others.
- High return volumes can increase costs, create delays and put pressure on customer service teams, particularly for smaller businesses with limited staff and resources.
- ERP systems such as Khaos Control help businesses manage the process more effectively by bringing returns, inventory, orders and customer data together in one place.
What is returns management?
Returns management is the process of handling products that customers send back after purchase. That includes approving the return, inspecting the item, resolving the issue with the customer and deciding whether the product should be restocked, repaired or disposed of.
Returns management involves customer service teams, who handle queries and keep customers informed, and logistics teams, who monitor returned goods as they move back through the supply chain. It also plays a key role in inventory management, as stock levels need to be updated quickly and accurately.
Why is returns management important?
Dealing with a return is one of the most common interactions you will have with a customer after they make a purchase. A smooth process shows customers that your business is organised and easy to deal with. A poor process does the opposite.
Returns also affect your costs and stock levels, and influences your ability to spot problems such as product faults, fulfilment errors or unclear product descriptions.
It builds trust and encourages repeat business
A clear and reliable returns process reassures customers that they can buy with confidence. If something goes wrong, they expect a straightforward resolution without delays or confusion.
Around 80% of UK consumers say they are more likely to return to a brand that handles post-purchase issues well, suggesting that return management can actually improve how customers view your business and make them more likely to recommend you to others.
It helps protect your business from fraud
Returns can expose your business to risk if they are not properly controlled. Fraudulent returns, such as used or counterfeit items being sent back for a refund, currently cost UK businesses £1.3 billion a year.
With the right systems and policies in place, you can track suspicious return patterns and make more informed decisions when approving refunds or exchanges.
It keeps your inventory accurate and under control
Returned items need to be accounted for as soon as they re-enter the supply chain. Delays or errors at this stage can skew your stock levels, leading to missed sales and unnecessary reordering.
By inspecting and processing returns quickly, you can decide whether items should be restocked, repaired or removed from sale. This keeps your inventory records accurate and reduces the risk of holding excess or unusable stock.
“Inventory accuracy is the backbone of operational control. When your stock data is reliable, you eliminate uncertainty, enabling better decisions, smoother fulfilment, and a consistently stronger customer experience.
Returns introduce complexity that can quickly undermine inventory accuracy. Without tight control, returned goods create discrepancies, stock appears available when it’s not, unavailable when it is, or tied up in inspection and processing.
Online retailers are experiencing a significant and sustained increase in returns, the problem isn’t going away, with rates increasing by 18.1% in 2025, it’s three times higher than brick-and-mortar stores. Effective returns management is essential to maintaining true visibility, protecting margins and avoiding costly disruptions.”
Daniel Cuthew, Head of Sales and Marketing at Khaos Control
It helps you identify product and process issues
Returns data gives you a clear view of how your products perform in the real world. If certain items are returned more often, or for the same reasons, this can point to issues with quality, sizing, descriptions or fulfilment.
The 5 steps of returns management
Step 1: Request and authorisation
The process begins when a customer requests a return. At this stage, they are usually asked whether they would prefer a refund, exchange or replacement.
Once the request is submitted, review it against your returns policy. If the return is approved, the customer is then given instructions for returning the item, along with a reference number or label to track the return.
Step 2: Return shipping
The customer sends the item back to your warehouse or processing location. This may involve dropping the parcel off at a designated point or arranging a collection.
Clear and reliable delivery options help to make this process as smooth as possible and minimise the risk of items being lost or damaged in transit.
Step 3: Inspection and quality check
Once you have received the returned item, check whether it matches the original order and meets the criteria set out in your returns policy.
At this stage, you decide whether the return is valid and what resolution should be offered. Consistent checks are important here to avoid errors and reduce the risk of fraudulent returns being approved.
Step 4: Customer resolution
Resolving the return could involve issuing a refund, sending a replacement or offering an exchange or credit.
Customers expect timely updates and a clear outcome at this stage. Delays or unclear messaging will frustrate them, even if the issue eventually gets sorted.
Step 5: Restocking or disposal
The final step is deciding what happens to the returned item. Items in good condition can be restocked and made available for resale, while others may need to be cleaned, repaired or refurbished before they can be sold again.
If the item is too damaged or not worth repairing, it may need to be recycled or disposed of.
Examples of returns
Returns can happen for many different reasons. Below are some common examples from retail and wholesale businesses.
- An online clothing retailer receives a return request from a customer who ordered the wrong size. The item is returned in good condition and added back into the inventory for resale. The customer receives an exchange in a different size.
- A wholesaler ships the wrong quantity of products to a trade customer. After the discrepancy is reported, the incorrect items are returned and checked against the original order. Replacement stock is then dispatched, and inventory records are updated.
- An electronics retailer receives a faulty product back from a customer within the warranty period. After inspection, the item is approved for return and a refund is issued. The returned product is then sent for repair or refurbishment.
- A homeware business notices that a particular product is being returned more frequently. By reviewing returns data and customer feedback, the business upgrades its packaging to better protect its products during transit.
Although the details vary, each return example ultimately relies on the same process – receiving the item, assessing the issue, resolving the return and deciding what happens to the product next.
Common returns management risks
Without a clear process in place, small issues with returns management can quickly lead to higher costs and disruption – so it’s important to be aware of the risks.
High return rates
Handling a lot of returns can put extra pressure on your team. UK online return rates average around 17.5% across sectors, and in some categories such as fashion, they can reach as high as 26%.
Every return takes time to process. Requests need to be reviewed, items need to be inspected and stock records need to be updated before the return can be resolved. But without an efficient process in place, delays can quickly build up. Customers may get impatient and frustrated if refunds or replacements take longer to issue, so ensure your business has the capacity to handle a lot of returns should it come to that.
Fraudulent returns
Returns processes can be exploited if businesses don’t implement strict checks. This can include customers sending back used, damaged or counterfeit items, or attempting to claim refunds for products that were never purchased.
Without a structured way to review returns and track patterns, these issues are difficult to detect.
Complex and costly logistics
Returns are expensive to handle. Once an item leaves the customer, it may need to be collected, checked and sent elsewhere before it can be resold. Some products go back into stock straight away, while others need repair work or further inspection.
The process becomes even more difficult when items are moving between suppliers, warehouses or third-party repair centres. Delays during transit can slow everything down and increase costs, particularly for businesses with limited staff or warehouse space.
Reputational damage
Customers expect returns to be straightforward. If refunds take too long or communication is poor, frustration builds quickly.
Since returns are often one of the few direct interactions a customer has with your business after purchase, a poor experience can damage trust, even if the original sale went smoothly.
Complex returns policies
Returns policies that are difficult to understand can confuse customers and staff. If different rules apply to different products or scenarios, returns take longer to process and mistakes become more common, particularly when customers are unsure whether their return will be accepted.
Budget constraints
Returns can be expensive to process, especially for lower-margin products where the cost of shipping, inspection and refunds quickly adds up. Even a modest increase in returns can put pressure on smaller businesses with tighter cash flow.
It’s also harder to control costs when returns are not being tracked properly. Without clear reporting, businesses may struggle to spot inefficiencies, recurring issues or products that are generating more return costs than revenue.
How to optimise returns management
In a perfect world, any business would love to eliminate returns altogether – but in reality, the best thing to strive for is an efficient process that reduces unavoidable costs and keeps customers happy.
A good place to start is with consistency. Returns should be handled the same way every time, with clear guidelines for both your team and your customers. This helps your staff process returns more quickly and means customers know what to expect when they encounter an issue.
Return instructions should also be clear, requests should be easy to make and updates should be provided at every stage of the experience. This means customers are less likely to chase for information, giving your team more time to process returns and resolve problems.
To make meaningful improvements, you should also analyse your returns data, which will tell you how your products are performing. Tracking metrics such as return rate, refund rate, exchange rate and processing time can highlight patterns that would otherwise be missed. Identifying any negative trends will help you make changes to reduce returns over time.
How can ERP software help with returns management?
Returns affect your inventory, your finances and your customer relationships. When they’re handled across disconnected systems or spreadsheets, it becomes harder to track progress, update stock and process refunds.
This is where ERP systems such as Khaos Control can make a significant difference. By bringing returns, orders, inventory and customer data together in one place, you can manage the entire process more efficiently and with fewer manual steps. Returns can be processed directly from the original order, stock levels can be updated automatically and your team can track the status of each return as it moves through the system.
Automation is also one of the key benefits of ERP software. With a single system to handle return authorisations, credit notes and refunds, your team can process returns more quickly and with fewer errors. There is no need to re-enter information or switch between systems, which helps reduce admin and keeps everything consistent.
Khaos Control’s ERP system also allows you to analyse returns data in more detail. Because returns are linked to customer and product records, you can see which items are returned most often and take action to spot recurring issues.
Conclusion
Returns may be unavoidable, but a disorganised returns process is not. Businesses need to be able to process returns quickly and identify recurring issues before they become more expensive to fix.
That becomes much harder when returns are being managed across spreadsheets or disconnected systems. Delays build up easily and staff spend more time chasing information than resolving the issue itself.
With an ERP system like Khaos Control, you can manage returns as part of your wider operation rather than as a separate admin task. Orders, inventory and customer data all sit in one place, making the process easier to manage from start to finish.
Book a free demo now to explore how Khaos Control can help you simplify your returns process.