Ecommerce Reconciliation: how to automate your returns reconciliation

In the world of Ecommerce, returns are inevitable, which makes the process of returns reconciliation a critical component of not just maintaining accurate financial records but also minimizing business impact. Returns reconciliation involves tracking, verifying, comparing, and reconciling the returns received from customers, ensuring that the return transactions are properly accounted for in the company’s accounting software and that any discrepancies in returns in the form of partial, damaged, or missing returns are identified & acted upon quickly.

Returns reconciliation, therefore, becomes crucial for Finance teams in order to achieve the following goals:

Returns verification: to validate whether the returns have been received and if they are partial returns or have been returned in a damaged or used condition.

Processing refunds or replacements: once a return has been verified and is found to meet the returns criteria - unused & undamaged, and returned within the return window, companies need to process the refunds/replacement.

Inventory management: a return also needs to be updated in the inventory management platform in order to reflect the accurate inventory, not just to accurately account for it but to also minimize any impact on sales due to potential stock-outs.

Analytics & insights: returns reconciliation and the data around returns is a goldmine for Ecommerce companies. It helps them identify & analyze returns-related trends, which can help companies identify primary reasons for returns & help them make informed decisions such as improving product quality if needed, adjusting their returns policy, and even focusing on a specific customer cohort or region.

Therefore, as explored above, returns reconciliation doesn’t just help companies ensure accurate financial records and manage inventory efficiently in order to minimize stock-outs or over-stocking, but an efficient returns process also improves the overall customer experience & satisfaction and leads to better, more informed decision-making by them.

Traditionally, returns reconciliation has been a labour-intensive and time-consuming task, often prone to errors. However, with advancements in technology, automated returns reconciliation has emerged as a game-changer in streamlining this essential financial process.

What is Automated Returns Reconciliation?

Automated returns reconciliation is a financial management process that utilizes software and technology to efficiently match and verify returns against corresponding sales transactions. This process is primarily used by businesses to ensure that all returns are accurately recorded, the financial records are kept up to date, any discrepancies are identified and the respective business impact due to them is mitigated quickly. Automated returns reconciliation significantly reduces the risk of errors, enhances transparency, minimizes business impact, and saves time and resources compared to manual reconciliation methods.

Key Components of Automated Returns Reconciliation

Data integration: Automated returns reconciliation systems often integrate with a company's financial & inventory management software, and other sources of data including marketplaces like Amazon, Flipkart, Myntra etc, Ecommerce websites (Shopify, WooCommerce, others), payment gateways, and shipment partners, allowing for a seamless transfer of data. This integration ensures that returns are matched with the corresponding transactions accurately.

Matching algorithms: These algorithms are at the heart of automated returns reconciliation. They use various criteria, such as date, amount, and product SKU, to identify and match return transactions with the corresponding records in other systems including inventory management, OMS, accounting software etc.

Remove leakages: Manual reconciliation processes are characterized by delays, errors, low efficiency, and limited ability to scale as transaction volumes increase. Automated reconciliation platforms improve not just the accuracy of reconciliation processes, but also the Finance team’s efficiency by helping them focus on data analysis & decision-making, and strategic tasks aspects of their business.

Exception handling: Automated systems are equipped with exception-handling capabilities. When discrepancies or irregularities are detected, the system can flag them for further review, and even automate claim filing & tracking with marketplaces or other third parties, ensuring that no discrepancies go unnoticed.

Reports and analytics: These systems provide valuable insights and reports that can help businesses understand return patterns, identify trends, and make data-driven decisions.

User-Friendly interfaces: Many automated returns reconciliation tools offer user-friendly interfaces, making it easier for Finance teams to manage and monitor the reconciliation process. These interfaces also often provide real-time status updates and alerts.

Benefits of Automated Returns Reconciliation

Automation significantly reduces the risk of human error. The software uses matching algorithms to ensure that returns are accurately reconciled with corresponding transactions, leading to more precise financial records. With the introduction of AI into the Finance Management space by platforms like FinanzOS, reconciliation is expected to become a lot more powerful with it becoming possible to reconcile even dynamic data sets.

Automated returns reconciliation processes transactions quickly and consistently. This frees up employees to focus on other critical tasks, which can lead to increased productivity and reduced labour costs. It also identifies leakages due to missing, partial or damaged returns, which are otherwise going unnoticed, directly impacting a company's bottomline.

As a result of increased efficiency and reduced errors, automated reconciliation can lead to cost savings in the long run. Fewer errors mean fewer resources spent on resolving discrepancies and correcting records.

Automated systems can perform reconciliation in real-time or on a predetermined schedule. This means that discrepancies can be identified and addressed promptly, reducing the risk of financial losses due to discrepancies going unnoticed. Compared to this, manual reconciliations are, more often than not, performed periodically - weekly, fortnightly or monthly depending on the business size, complexity of operations and the data sets to be reconciled. This means that any discrepancies are identified with a delay or a lag on account of the process, making it difficult for companies to mitigate the risks associated with these discrepancies, such as overcharges by marketplaces.

Automated reconciliation systems provide valuable data insights. By analyzing return patterns and trends, businesses can make more informed decisions regarding inventory management, customer service improvements, and product quality.

Automation can help reduce the risk of fraud or manipulation of financial data. The software can flag irregularities or discrepancies for further review, which can help detect and prevent financial misconduct.

Considerations while Adopting Automated Reconciliation Software

While automated returns reconciliation offers numerous advantages, companies can take the following considerations in mind before identifying software that’s right for your business:

Types of reconciliation processes that need to be automated: It involves identifying the specific reconciliation processes within your business that would benefit from automated solutions. It is essential to assess which areas of your operations require improved accuracy, efficiency, and transparency through automation. By pinpointing the specific needs, you can select software that aligns with your unique requirements, enhancing the effectiveness of your reconciliation processes while ensuring they remain in accordance with industry standards and regulations.

Integration capabilities: Ensure that the software can seamlessly integrate with your existing systems and processes. It should be compatible with your accounting software, inventory management, marketplaces you sell on, payment gateways you use, shipment partners, and any other relevant tools. This integration capability helps streamline operations and reduces data entry errors.

Scalability: Consider your company's future growth when selecting reconciliation software. The software should be able to accommodate increased transaction volumes, additional products, or more complex returns processes as your business expands. Scalability ensures that the solution remains viable in the long term.

User-friendliness: The software should be easy for your team to use. A user-friendly interface and intuitive design can significantly reduce the learning curve and increase productivity. Training requirements should be minimal, and the software should enhance, rather than hinder, your team's efficiency.

Cost & ROI: While softwares come with initial an spend, they more often than not pay several times over in ROI, either in terms of cost savings or optimizing topline and thereby improving your business outcomes. Therefore, it is important to budget your spend for a reconciliation tool that addresses your specific use-cases and select the one that offers the most value within that budget.

Change management: Implementing new software often requires adjustments in workflows and procedures. Anticipate potential resistance to change from your team. Make sure to work with a software partner that doesn’t just make this transition smooth by providing adequate support in the initial days, but also that ensure that there’s minimal change management for the team.

We will cover more on how companies can select the right reconciliation software in a subsequent blog. So, keep watching this space.

However, if you are struggling with manual reconciliations of various data sets for your Ecommerce business including settlements, payments, returns, inventory, shipping, and bank, among others, you can simply adopt FinanzOS, a first-of-its-kind AI-powered Co-pilot that is helping Ecommerce companies automate their reconciliation & other accounting processes including Bookkeeping, and enabling them to make better, faster decisions with the help of real-time analytics around their Ecommerce business & financial operations.