What Is Return Authorization?

Definition & Examples of Return Authorization

Unsold goods awaiting an return authorization

 Visoot Uthairam / Getty Images

Return authorization is the process of authorizing and tracking the return of inventory. It is an aspect of reverse logistics.

Learn the basics of how small businesses can use return authorization to return products.

What Is Return Authorization?

Return authorization is the process by which a business can return an item. These items may be returned to a wholesaler, original vendor, or manufacturer. Return authorization serves as a control mechanism for vendors, wholesalers, and manufacturers. It provides a way for items to be returned, but it also provides a way for these entities to control which items are returned, why they're returned, and how the business is refunded for the return.

  • Alternate names: Return materials authorization, return goods authorization, return to vendor
  • Acronyms: RA, RMA, RGA, RTV

If retailers didn't need to authorize the products they send back for credit, vendors could go bankrupt paying for retailers' mistakes.

How Does Return Authorization Work?

Even the most efficient retail businesses have some products that don't sell. That dead inventory takes up needed space on the shelves and in the stockroom. Plus, the longer a style sits on your shelves, the more a customer is going to notice it and think you are not getting fresh inventory. The best way to solve this problem is with an RA. 

A vendor will determine whether or not to process an RA based on several factors, including the following.

Relationship With the Wholesaler

The RA process depends heavily upon the relationship you have with the wholesaler, vendor, or manufacturer. A vendor needs to weigh the return on investment in issuing you an RA.

Are you likely to buy more merchandise? If so, the vendor may determine that it's worth issuing an RA to keep your business. Are you a good retailer who made a bad decision by buying this product? If so, then the vendor may be willing to forgive it with the expectation that you'll make better inventory decisions in the future. If, on the other hand, the vendor determines that you're simply bad at determining appropriate inventory levels, then they may be less willing to subsidize your bad decisions by accepting a return.

Age of Inventory

The older the inventory, the less likely you are to receive an RA. After all, the vendor needs to find another place to sell whatever you return. Old inventory will be difficult to sell to another retailer, especially in industries like fashion that have products that quickly go out of style.

To increase the chances of your RA request getting accepted, try to submit it before the end of the season. It may not get processed until the end of the season, but the vendor will appreciate your being on top of your business, and they may be more likely to accept the RA.

Known Issues or Defects With the Product

Sometimes there is an issue with the product that impacts the sales. There may have been a mistake during the manufacturing of a shoe, for instance, that makes it not fit like the size printed on the label. In this case, the manufacturer is more likely to accept the RA.

Return Policy

Typically, a vendor or wholesaler will issue you a credit for the return goods, instead of actual cash. If you are regularly ordering fill-ins from this vendor, you will probably use the credit quickly. Also, it is common for you to pay for the freight back to the vendor.

You can always ask for a cash repayment. It is worth a try. Even if they don't pay the entire refund in cash, they may pay for the return freight.

Before adding a new line to your retail store, learn more about the RA policy for that line. Some vendors don't have an RA policy. That means any problems with the inventory will be all yours to handle on your own. This is more likely to be the case with a vendor who imports all of their goods and has no outlet or storage space for the products if you return them.

You should also ask about co-op funds and other ways they will help you sell their merchandise. The more they are willing to work with you and support you, the more invested in them you should become.

How to Get a Return Authorization

Return authorizations can save you money, and cash is king in retail. If you cannot get an RA, then you will likely be left with a lot of markdowns. It's always worth trying for an RA, but make sure you have justified the case, and aren't simply trying to get a vendor to fix your buying mistakes.

That's why your first step in getting an RA should be to clearly build your case. Before you even contact your sales rep about an RA, you need to justify the need for it. Be prepared to show how similar items have sold better, and offer some ideas for why the item you want to return did not sell as well.

Next, contact your sales rep for the products. This may be a rep from the vendor or a wholesaler who sells the product for them. Your chances of getting an RA will likely be better the more directly you can deal with the vendor.

When you contact the rep, make sure you are clear about the "terms." For example, who is paying for the freight? Are you getting full cost as a credit or partial? Will they ship the new goods before they receive the old ones? Extended dating could help if they don't want to ship new goods before receiving the old ones.

Key Takeaways

  • Return authorization is the process a retail business initiates when they want to return a product.
  • Return authorization is an aspect of reverse logistics.
  • Whether or not a business's return authorization is approved by the vendor will depend on a variety of factors, including the justification for the return and the relationship between the two entities.