Amid booming online sales, there's an inevitable downside: more merchandise will be returned. Today, the average eCommerce return rate is 18.1%. Retailers understand firsthand the cost of returns in time and resources: returned items must be processed, inspected, and restocked before they can be purchased again. A survey from Pitney Bowes found that online returns cost retailers on average 21% of original order value, with several brands reporting ratios substantially higher.
Returns Management Software (RMS) helps Shopify retailers process returns more efficiently, reducing the number of steps in returns management and processing Shopify refunds to customers as quickly as possible. While RMS ensures a seamless returns experience, there are other crucial functions on the back end that RMS does not handle, such as pushing returns data to the accounting system and assisting the accounting team in reviewing returns.
Just like omnichannel retail sales transactions, retailers must post return transactions to the accounting system for General Ledger entries and reconciliations. Month-end retail sales and returns audits can take hours and sometimes days, especially if there are discrepancies in the returns report that the accounting and management team must identify manually.
An Order Management System (OMS) can automate the end-to-end reconciliation process for Shopify retailers. In this blog, let’s explore why an OMS must communicate with a retailer’s accounting system, how it posts returns from Shopify to the accounting system, and how it ultimately assists the accounting team with the financial auditing of Shopify refunds.
OMS and Accounting Systems: A Critical Relationship
An OMS undoubtedly plays a critical role in any Shopify retailer's tech ecosystem. This software is responsible for downloading sales orders from a retailer’s Shopify eComm & POS, and routing them to the most suitable fulfillment locations. When order items are fulfilled, they are subsequently marked as completed in the OMS and Shopify.
This order information must then be passed to a retailer’s accounting system to track and record sales across all channels for general ledger postings and financial reporting. Each day, all completed orders are sent to the accounting system through what’s called a “sales order financial feed,” which requires integration between the OMS and accounting systems.
What does this look like in practice? An OMS can send financial feeds to the accounting system in one of two ways:
It generates the sales order financial feed in CSV format and places it in an FTP location. The accounting system reads this report from FTP and imports it.
It shares the financial feed through APIs (if the accounting system is cloud-based).
Either way, it takes time and effort to set up this integration between the OMS and accounting systems. Once it’s set up though, it makes sense that this integration should also be leveraged to send Shopify refunds data to the accounting system. Instead of building a new custom integration with the RMS, keep it simple and just download returns and appeasement data from Shopify to your OMS to be incorporated in financial feeds.
How Does An OMS Post Shopify Refunds to the Accounting System?
Now that we understand how important it is to integrate your OMS with your accounting systems to share sales and returns data, let’s explore how an OMS posts Shopify refunds to the accounting system. As returns are processed and refunds are issued to customers, the OMS downloads all returns and appeasements from Shopify.
What types of returns are reported from an OMS to the accounting system? Please note: an OMS should be able to differentiate between Shopify refunds and appeasements when reporting to the accounting system, or the financial feeds may report an inaccurate total of returns.
Returns: Sometimes, a customer’s expectations are not met upon receiving their order. Maybe they received a damaged item, or it wasn’t the right fit. In these cases, the customer will ship the item back. Once a retailer receives the returned items, they will refund the customer.
Appeasements: Appeasements refer to situations when a retailer refunds an order without receiving a returned item – a thoughtful gesture designed to express apologies in a way the customer will find meaningful and valuable. Often, this occurs when a customer is unsatisfied or disgruntled. Appeasements can ensure that a bad situation has a positive outcome and that unhappy customers do not influence others to avoid making a purchase.
When processing returns, some retailers will only refund the item amount. In contrast, some retailers refund sales tax and shipping charges along with the order item's price. An OMS should be flexible and allow retailers to report to accounting systems based on their preferences.
Automating the Financial Reconciliation & Auditing Process
eCommerce returns should always be reflected in the accounting system. It's imperative to match the daily and monthly return totals in the accounting system and eCommerce. Ensuring that these totals match and no returns are left unreported in the accounting system is a major KRAs for accounting teams.
Whenever there is a discrepancy between eCommerce and accounting systems, accounting managers need to figure out why some records are missing. And finding missing orders is more challenging than it sounds. The accounting team often spends hours or days analyzing the returns summary reports of Shopify, OMS, or accounting systems to determine the missing return items.
The solution? A software that automates the financial auditing of Shopify refunds: Omnichannel Retail Sales Auditing Software (OReSA)
OReSA automates the financial reconciliation of returns. When a discrepancy between the daily and monthly returns summary reports from Shopify is detected, your OMS, and your accounting system, the software, also reports the return items responsible for the mismatch. So, how does OReSA work?
- It downloads daily return summary reports from Shopify and your OMS, then compares them.
- If the totals do not match, it generates a report of items reported as returned in Shopify but not in the OMS AND items reported as returned in OMS but are not in Shopify.
- This report is sent to the appropriate team so they can quickly find out why return items are missing and fix the error.
OReSA automatically reconciles monthly return summary reports from Shopify and your OMS. The same process is repeated for the daily and monthly return summary reports generated by the OMS and accounting system. By automating this, the accounting team saves valuable time and can focus on other important tasks.
Financial audits are an incredibly important way for retailers to ensure their daily and monthly reports are accurate. Retailers need a system that can reconcile data from different systems and show a unified view of sales and returns.
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The HotWax Commerce OReSA software automates sending sale and return reports daily and monthly. It's easy to integrate with a retailer's accounting system, and it can send financial feeds in a format the accounting systems understand. In addition, OReSA reconciles these reports, identifies mismatches, and finds the potential reasons for the mismatch. If you are interested in learning how OReSA can free up valuable time for your accounting team and eliminate costly discrepancies in your financial reporting of Shopify refunds, contact our omnichannel experts today.