The Cost of Sending It Back: A Pre-Christmas Blueprint for January 2027 Returns
Photo: Betty Longbottom , CC BY-SA 2.0, via Wikimedia Commons
By mid-November, most UK retail and e-commerce SMEs have turned their attention to peak trading. Orders, stock and seasonal cover dominate the diary. The reverse flow is often left until the first working week of January, when parcels begin arriving faster than they can be opened. That is a cash-management mistake. Returns are not an exception to the peak season; they are its second half.
Begin with the refund liability
A return creates a chain of obligations before it creates any cash. The customer expects a refund, the courier expects payment for the return leg, and the warehouse expects labour to inspect and repack. For a VAT-registered retailer, the output tax position also needs to be corrected through a credit note or adjustment, which means the finance function should be involved from the start rather than after the bank reconciliation.
A simple way to plan is to build a returns reserve into December forecasts. Take the value of sales expected between Black Friday and Christmas Eve, apply the return rate observed in the same period last year, and set aside the cash needed to meet refunds in the first three weeks of January 2027. Adjust for any change in product mix, because fashion, footwear, electronics and homeware rarely behave in the same way. The reserve should be visible in management accounts, not buried in a general overhead line.
The true cost of a returned parcel
Most owner-managers know the price of the refund. Fewer know the full cost of processing the parcel. A returned item may carry an inbound delivery charge, an inspection cost, a cleaning or repackaging cost, and a markdown if it cannot be sold as new. There is also the original outward delivery cost where free delivery was offered, which is rarely recovered in full.
A practical response is a returns cost card for each major product group. Record the average return courier charge, the minutes needed to open, scan, inspect and restock, the cost of replacement packaging, and the likely resale route. A £60 item returned at a rate of one in four can absorb a meaningful share of its margin once labour and courier costs are counted. The exercise does not need perfect precision. It needs to be consistent enough to show which products and which customer promises are profitable after returns.
A policy that protects margin without deterring sales
Returns policy is a commercial tool, not merely a legal document. UK distance sellers must respect cancellation rights, and a Christmas extension is common practice. Beyond the statutory minimum, the policy should be clear enough that customers can understand it before purchase and staff can apply it without escalation.
For SMEs with thin margins, blanket free returns can be expensive. A threshold, such as free returns above a set order value, may preserve conversion while limiting exposure on low-value orders. Where a return charge is used, it should be stated plainly at checkout and applied consistently. Restocking fees should be reserved for specific circumstances and explained in advance. Exclusions for hygiene, personalised or perishable goods should be easy to find.
Exchange and credit incentives can also reduce cash outflow. A customer who accepts a replacement or a credit note may still be a satisfied customer, while the business avoids a full refund leaving the bank account immediately. The policy should be published before the Boxing Day rush, tested on the website, and briefed to anyone who answers customer queries.
Staffing the first fortnight of January
The returns operation needs a rota, not an improvised queue. In the first two weeks of January 2027, many SMEs will see returns arrive in volumes that exceed normal weekly handling. A separate returns desk, even if it is a temporary table in the warehouse, prevents returned stock from mixing with dispatch stock.
Identify the daily parcel volume expected from last year and add a contingency for late deliveries. Allocate named staff to opening, scanning, inspection and restocking. A two-person inspection cell can often process more than the same number of people working across unrelated tasks, because the work is repetitive and needs consistent grading. Train temporary staff on the policy, the reason codes and the difference between a resaleable item and one that must be quarantined.
Set cut-off times for refunds and communicate them to customers. A refund that is promised within three working days but issued after ten creates avoidable queries and chargebacks. The finance team should know the daily refund total so that cash forecasting is updated weekly rather than reconstructed at month-end.
Stock control from parcel to sellable cash
Returned goods should move through a defined sequence: receipt, inspection, grading, decision and restock or disposal. Each item should be scanned against its order and assigned a reason code, such as size, damage, fault or changed mind. Photographs are useful for higher-value items and for supplier claims.
Not every return should go back on the shelf. A grading system keeps the decision honest. Grade A can be restocked as new; Grade B may need cleaning, repackaging or a clearance channel; Grade C should be written down or returned to the supplier where terms allow. The important control is that returned stock does not sit in an unlabelled bay for weeks, tying up cash and distorting stock figures.
Weekly, reconcile refunds issued against returns received and against courier invoices. Look for patterns by product, size and courier. A fault cluster may justify a supplier claim; a size cluster may point to inaccurate product information. Both are cheaper to fix before the next peak than after it.
A checklist before Christmas Eve
Before the rush, publish the returns policy, brief customer service, set courier collections for January, prepare labels and returns templates, and clear a defined returns area. Update the cash forecast with a returns reserve. In the first week of January, hold a short daily meeting on parcel volumes, refunds issued and stock restocked. The objective is not to eliminate returns, which would be unrealistic. It is to make sure that every parcel that comes back is turned into a decision, a refund or sellable stock without draining the January bank balance.
