Return Merchandise Authorizations

Return Merchandise Authorizations are usually issued as a way for vendors to try to retain customer goodwill after they have delivered defective merchandise.  Return merchandise can cause serious delays in payment from customers. Processing RMA returns is complex, typically involving multiple departments.  This results in numerous opportunities for problems resulting in delays in issuing credits which in turn results in delays in payments.

A Return Merchandise Authorization (RMA) is issued by the seller.  An RMA authorizes the customer to return specific product by providing a unique number as an identifier.  The RMA number must be attached to returned merchandise in order for the vendor to track the RMA including the number of units returned. 

There are many reasons customers request RMAs.  The most common are RMAs for defective merchandise.  As it relates to defective merchandise, part of the question about whether or not to approve and issue the RMA is whether or not the defective merchandise is within the warranty period, or outside of the warranty period.  In some industries, RMAs are issued to enable customers to properly balance their inventory levels.  These are called stock balancing RMAs.  In some industries, customers are permitted to return outdated inventory for more current inventory.  This is sometimes called an Upgrade RMA.  In some cases, merchandise is returned for credit.  Often, the supplier prefers that merchandise be returned for either repair or replacement at the seller's option.

 In order to better manage problems associated with returns, credit professionals must first understand the process, which typically includes these steps:

1. The customer contacts the sales department or customer support to request a return authorization, 
2. The request is reviewed. If the return authorization is approved, a Return Merchandise Authorization ("RMA") is issued,
3. The customer returns the goods,
4. The receiving department accepts the goods, 
5. Someone warehouse inspects the goods. If appropriate, the merchandise is returned to stock,
6. Inventory control updates the company's records to reflect the return of merchandise, 
7. The accounting department or customer support determines at what price the goods were actually sold, and at what price the credit will be issued, 
8. The credit is issued and sent to the customer,
9. Accounting adjusts the sales commission, 
10. The customer decides whether or not to accept the amount credited as full credit for the return, 
11. If not, the process becomes far more complex. 

What is interesting is that no single department is responsible for the entire process meaning the returns process has no champion. Since no one is responsible for ensuring the process moves quickly, no single person or department can be held accountable when delays occur. Delays in issuing credit for returned product inconvenience the customer, and equally important delays in issuing RMA credits can delay payments. 

It seems obvious is that RMAs need a champion.   A champion would be someone in the creditor company that can shepherd RMAs through the approval process, and can resolve bottlenecks.  The goal of the RMA champion would be to ensure that byRMAs get issued promptly and for the correct amount.  Sometimes, the RMA champion is a member of the credit department assigned the task of managing disputes and deductions.  Often, each collector is in effect the RMA champion for his or her assigned accounts.   The rationale for making the RMA champion a member of the credit department is that only the credit department has a vested interest in getting invoice paid and disputes repaid sooner rather than later.

Copyright 2010 by Michael C. Dennis.  Excerpted from "Credit and Collection Handbook" by Michael C. Dennis.