This article is relevant if you are seeking to drive NetSuite to handle complex return and refund scenarios.

Background

Product returns are often a complex subject matter to address. Tackling returns demands the appropriate attention to detail and business requirements; thus, in new NetSuite implementations, our firm’s general approach is to work on all the primary forward logistics and accounting transaction flows.  Often, in our Phase 2 implementation efforts, we then tackle reverse logistics.

NetSuite offers up general transactions to help with returns. The primary record is the Return Authorization spawned from the original sales order to start the action. Yet, the challenge with the NetSuite model is that the platform is very generalized and designed to accommodate so many different situations. Consequently, it’s up to the organization to carefully consider how they want to implement their return policy using the provided records. Indeed, the Return Authorization record is a good place to start — yet this record structure is generalized, and it may be too difficult to express the desired processing and accounting logic on this record alone.

I have written a number of articles on returns in the past. However, nothing comes close to the returns and refunds comprehensiveness that I will express in this article:

• 2017: NetSuite Driven Returns Flow Design Considerations: general pattern to consider for starting to design a returns policy using NetSuite records.
• 2020: Get Control over NetSuite Sales Returns General Ledger Accounting: getting control over the challenge of debiting sales in returns flows.
• 2022: NetSuite Driven Allowance and Reserve Accounting: allowance accounting for returns and other reserve scenarios.
• 2022: Drive Simplified Retail Based NetSuite Inventory Exchange and Returns: a pin-pointed mechanism to drive common retail-based exchanges.

A client that drives a complex customer-deposit-driven eCommerce operation using NetSuite to drive all fulfillment and finance management sought our leadership to get in front of the challenge. They recognized the high administration and reconciliation costs they were incurring as we well as the challenges of driving trust when communicating related logistics and refund information to their customers. Because they sell expensive and configurable fixtures to end customers, interior designers, and building architects, there is often a need to return and replace parts as the construction installation situation emerges. Hence, a streamlined transaction flow becomes a competitive advantage.

Fundamental Returns Management Considerations

When driving more complex NetSuite returns flows, it’s important to consider patterns that help you stay under control. Non-financial records, such as Sales Order or Purchase Order records, are effectively planning records to help drive promises to fulfill.  Thus planning records should be shaped according to the promise and commitments that parties (i.e., suppliers and customers) make with each other. NetSuite’s Return Authorization Record is a planning record — yet it lacks sufficient scope to drive highly-complex return narratives.

Instead, we need a more comprehensive return planning record structure that can express all the desired return situations that we can anticipate coming forth.

Introducing the Return Manager

To start this conversation, we recognized our client’s situation and ambition to truly get in front of the NetSuite return challenge. Thus, we knew we had to design in a fundamental fashion to drive the most flexibility for the situations they would encounter in their eCommerce sales and NetSuite backend fulfillment and financial model.

Since the Sales Order represents the general place for which the original commitment is planned and managed, it is the natural place to drive a managed return. Thus, a customer service representative can initiate a managed return from the Sales Order. But instead of producing a Return Authorization as offered by NetSuite, we will target a much more comprehensive Return Management record structure to be able to express the situation.

Return Manager Header and Line

Thus the custom Return Manager record imitates the Sales Order in that it has both header and line information. Every line on the Sales Order is effectively copied as a Return Manager line and linked back to the original sales order line. With these structures, we are free to express many different situations, which then can drive subsequent NetSuite transactions. Click on the related images to see concepts and structures.

Product Return and Financial Situational Impacts

A number of patterns often come up that drive the need to take care of customer desires for returns. The Return Manager helps to produce the language and related transactions to drive customer and warehouse logistics with many parties. Consider these situations (click images to see concepts):

• Product Return: the classic situation is an entire order, or just a component of an order would like to be returned. Yet, even in the common return scenario, many questions emerge: do we offer customer credit or a cash refund? Do we wait for the returned item to be received before we issue the credit/refund? In what forms do we offer a refund? Who pays for the shipping to move the goods back to the supplier? Are carriers proactively involved in the coordination? Is the item restocked, and at what price (revenue returned) and cost (cost of goods returned)?  What is the proper accrual accounting for these transactions? How do we carefully instruct the customer to return the goods? At any moment, what is the current status of the return?
• Product Replacement/Exchange: another situation is the replacement or exchange scenario. Here a customer wants to return the entire or part of an order and would like different goods. But new questions come up: what is the value of what is being returned compared to being replaced? How do we handle the differences in values? What if a replacement involves the return of one part for multiple parts? Who is responsible for the shipping cost of the replaced product? The key to this pattern is to create a new Sales Order but to label it as a Replacement to distinguish it from the Original sales order, which helps us see that we are in a subsequent fulfillment narrative from the first initiating narrative. What happens if we need to do another replacement/exchange on the just replaced product return? In the customer’s mind, the story in the Original sales order represents the origin point of all conversations. Can we see that return information from the original Sales Order?
• Coordination with Product Supplier: many product returns need to get back to the supplier for subsequent vendor credit (classically a debit memo). What if the original fulfillment was through a drop-ship flow (Note, review my 2016 article on proper drop ship accrual accounting item costing for a rich solution discussion)? Where does the customer ship the returned product? How do we cross-reference our vendor return logistical and financial information? How do we know if parties have performed?

Financial Only Return Situations

Other situations may have only a financial impact. Consider these sub-scenarios:

• Discretionary Refund: sometimes, matters (through appropriate approvals) need a customer service agent to “give back funds” to maintain customer loyalty. Perhaps we want to forfeit shipping charges. What if we simply want to give some type of dollar credit to generally make things better? How do we account for this? What if the customer subsequently calls back and wants even more? What controls do we put around this powerful but possibly fraudulent-prone process?
• Line Refund: in our customer’s model, they use customer deposits to help drive the business flows. (note, my firm is recognized as the leader in producing and managing customer deposit flows. See related articles). A customer may seek to produce a change order on unfilled items — and then they expect a refund on a portion of deposit funds. How do we account for the value of the refund? What if we have started fulfillment, but the customer has yet to receive it?
• Concession Refund: perhaps we think about returns where we don’t want the product back (consider the apparel industry — returning underwear would simply be strange), but we want to return back funds. At the same time, what if the customer calls back and tries to make a refund request again? We want to distinguish these kinds of returns from our discretionary refunds because we want information about product returns to help with our subsequent merchandising planning.

Sales Order and Return Narrative Expressions

Since the sales order is the origin point for customer communications, it is important to be able to quickly see what the sales order status is and the possible scenarios that can drive returns/refund actions. As discussed earlier, we label sales orders automatically as “Original”, to distinguish them from “Replacement” so that we can see the overall narrative.

The key is to open up new information on the sales order line that helps us control the possible action on the Return Manager.

1. Returned Quantity: a sales order line should always indicate the number of items that have been previously returned.
2. Refunded Quantity: for those that need refunded customer deposits connected to unfilled items, we need to know what new refunds are possible and how many have already been refunded.
3. Changed Quantity: because a return may actually involve a change to the original sales order, we need to see what quantity we started with to help inform subsequent action.

Chain Together Returns

When a customer wants a replacement, we are effectively starting a new Replacement sales order process to produce a new fulfillment. A replacement sale order can end up in yet another replacement or return situation. We thus link subsequent Return Manager records together in a parent-child relationship so that we can chain them together as many times as needed to satisfy the customer’s ultimate requirements. We can see all the linked Returns from the originating return (and sales order), helping us stay centered in the overall narrative as customer service works to address customer demands while being comforted that we are under control.

Return Manager Transactional and General Ledger Expression

Answering the many questions above connects up many NetSuite transactions, including native Customer and Vendor Return Authorizations. All of these transactions, while linked in some manner, are often too distant to see from one another. Accordingly, the Return Manager presents a summary view of all the connected financial and non-financial transactions. Furthermore, we can summarize the General Ledger impact to confirm we are under control. Click related images to see these expressions. Because our firm is steeped in accounting background (I am an Ex-CPA, and we have other Accountants in leadership roles on our team), we ensure that we work with the CFOs/Controllers in our client organizations to shape the accounting impacts.

Additional Rule-Based Practice Controller Frameworks

Often, we want additional controls around parts of this process.  We often couple these flows to our Record State Management framework to drive truly scalable exception-based order processing models.

Solving NetSuite Customer Returns

I want to thank both Mathieu L. and Carl Z., Prolecto Business and Technical Analysts, for their outstanding leadership in producing these breakthrough patterns (perhaps you possess exceptional capacities and would like a leadership role in our organization?).  We are enthusiastic about the Returns Manager’s capacities and have implemented the software-drive best practices across multiple customers.  Using our High-Performance Framework, we are currently working with a client to connect this highly controlled NetSuite back-end application to front-end customer services applications such as Shopify, Zendesk, Kustomer and Hubspot.

Like all the intellectual property we produce for our clients, we give this software to our clients license-free to accelerate a solution. We hold that software is simply a capacity that must be unlocked through proper listening, planning and implementation. To solve customer returns and refunds well, we assert that developing a roadmap of the desired return and refund policies coupled with tailored software configuration to unlock the desired streamlined organizational practices is essential. Our clients have shared that the distinguishing factor that differentiates us is our listening and innovation capacities coupled with our deep NetSuite technical competencies.

If you found this article relevant, feel free to sign up for notifications to new articles as I post them. If you assess that NetSuite returns deserve proper modeling to unlock streamlined transaction processing and customer service practices, let’s have a conversation.

Marty Zigman

Holding all three official certifications, Marty is regarded as the top NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 30 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.

More Posts - Website - Twitter - Facebook - LinkedIn - YouTube