How to Deal with Returns Fraud as a Retailer
At least 30 percent of all goods ordered online on B2C and B2B eCommerce websites are returned. This means 1 in 3 items purchased online will be returned. While having a returns policy is highly encouraging for buyers to make purchases from you, there is always a chance of your returns policy can be exploited for financial gain by malicious actors.
It is hard to draw a line when it comes to returns fraud because there are so many factors involved and you can easily brand a good customer as a bad customer. This can lead to a loss of reputation for your store which can ultimately affect your business.
However, dealing with returns fraud is not impossible. By making use of a few clever strategies and using data to arrive at conclusions, you can spot and minimize returns fraud on your online store.
As you buy wholesale from a manufacturer or supplier and resell to your customers, you have the inevitable problem of dealing with returns and chances of returns fraud. If you do not identify and find ways to minimize/eliminate returns fraud, you can be in a catastrophic situation that may even put you out of business.
The way to deal with returns fraud as a reseller is to understand how it happens. There are a few common ways in which returns frauds are committed by retail buyers. By understanding the motivations and situations leading to returns frauds, you can be better equipped to minimize and eliminate returns frauds.
Types of Returns Fraud
Let us take a look at some of the common types of returns fraud to understand why they happen and how you can prevent them.
Wardrobing is when a customer purchases a product, usually clothes, shoes, and fashion accessories for a special event and returns it back after the event. This is among the common returns frauds committed by bad customers. Some even go to the extent of keeping the price tags intact and hidden during the event to return the product back later.
As a reseller, you have to be aware of the times of the year when this kind of returns fraud is rampant. This usually happens around May to July since a lot of high schools have proms between April and June. If your returns policy is 60 days, you can see the returns being stretched to August.
Sometimes customers also buy the latest electronic gadgets and accessories to use them for a short period of time before returning them.
Swapping is when a customer replaces the original product with a similar product of lower value, thus gaining materially from the transaction. This can be a big headache for resellers because they have to deal with inventory that is not original and hence not sellable.
While it is hard to identify swapping, with the use of bar codes and tags, you can minimize the chances of products being swapped and sent back for refund claims.
Customers paying for goods using credit cards can dispute the charge or claim that the product never arrived, hence claiming a refund.
While this type of fraud was rampant some time back, the recent changes requiring thorough investigation before refunding the amount has made it difficult for scammers to walk away with both the goods and the money.
However, chargebacks can be a problem for resellers, especially relatively new resellers, as they have to go through the extensive process of claiming delivery of products as per specifications.
Strategies to Deal with Returns Fraud as a Reseller
There are a few proven strategies to minimize returns fraud as a reseller. Often, new customers are the perpetrators of returns fraud.
When it comes to new customers, it is always hard when you’re dealing with them. Since there is no track record of their dealings with other sellers, you are left in the dark on deciding whether or not to do business with them. It is highly advisable to deal with new customers on reputable B2C websites like Amazon and Etsy.
1. Watch out for Seasonal Events
Seasonal events like high school prom and holiday season can trigger returns fraud. Be mindful of the events and their timelines as a reseller. Collect as much data as you can on the kinds of products bought by customers during these times.
By being prepared for seasonal events, you can better tailor your returns policy to minimize and eliminate returns fraud from bad customers.
2. Have a Clear Returns Policy
Your returns policy should be convenient for good customers, but should keep bad customers away. It is a fine line to walk. It is hard to have a solid returns policy that works flawlessly 100% of the time.
Here are a few things that must be clear in your returns policy to reduce returns fraud.
- Keep the returns window to a maximum of 30 days. You can also reduce this to 14 days during times of seasonal events to combat fraudulent returns.
- Insist on proof of purchase such as email and paper receipts when customers want to return the products.
- Mention that products that are returned should be in unused/original condition with no signs of stains or damage. You can also ask for original tags, labels, and plastic bags that came with the original packaging.
- Offer customers the option to get 5-10% extra in the form of store credit, if they opt for it as a refund option. Usually, good customers who genuinely want to return their products for a refund can make use of the additional 5-10% extra money as store credit to buy later from you. This can be a win-win for both the buyer and the seller.
3. Keep Track of the Inventory and Use an Inventory Management Solution
You should keep track of your inventory using barcodes and other tracking methods. By knowing the inventory you ship out, you will have the ability to track it back in case of returns. Also, use a reliable inventory management software to keep track of your physical inventory and keep everything in order as you’re running your reseller business.
4. Blacklist Customers
This should be your last resort in case all the above strategies fail. By taking a look at the customer’s records, if you see an unusually high returns rate and if they have slipped through other checks you have in place to reduce returns fraud, put them under watch.
If they place another order and request a return within the return window, you can be pretty sure that they might be exploiting your returns policy. If they are not a regular and valuable customer, you can blacklist them and limit their ability to purchase goods from you.
Considering the fact that how detrimental returns fraud can be for your reseller business, you have to have good checks in place to avoid customers exploiting your returns policy. If you see unusually high returns, ensure you follow the strategies mentioned here to effectively combat returns fraud.