Returns are inevitable in e-commerce. Although research proves that a lenient return policy can positively impact buying decisions, it also opens up a business to return fraud. This article discusses how small businesses can protect themselves against fraudulent returns without pushing away honest customers.
The Rising Risks of Return Fraud
The rise in e-commerce following the pandemic led to a dramatic increase in return purchases. Unfortunately, higher return rates also translate into an increase in fraudulent returns. A survey by the National Retail Federation (NRF) found that about 16.6% of retail sales in the US were returned in 2021, and up to 10% of these returns were fraudulent. To worsen matters, the rate of fraudulent e-commerce returns was even higher at 20.8%. This number is expected to increase as more businesses enter the online space, presenting a critical and expensive problem for e-merchants.
Types of Return Fraud
There are different types of return fraud to watch out for as an e-commerce business owner. They include:
- Wardrobing: This is when a customer purchases an item to use it once and return it later for a full refund. It is a common tactic used by customers in the fashion industry.
- Returning shoplifted items: Businesses with both physical and online stores are susceptible to experiencing this type of fraud. The scammer steals an item from the company’s physical store and returns it later for a cash refund.
- Swapping merchandise: This is when a fraudulent customer buys a new product and returns a damaged or old copy in its place.
- Empty box fraud: Here, a customer claims to have received an empty box and demands a replacement or cash refund while covertly keeping the original item.
- Bricking: Bricking occurs when a customer strips an item of its valuable parts, resells them for a profit, and returns the defective item for a full refund.
Why your business should care about returns fraud
Return fraud is detrimental to sales and overall profitability. In 2020, online businesses across the globe lost nearly $25.2 billion to returns fraud. Besides the loss of revenue, return fraud also increases a business’s operational costs. A rise in fraudulent returns will often lead to businesses putting more effort into checking returned items for signs of fraud or foul play. While this can help deter scammers, it can also be time-consuming and labor-intensive, leading to a hike in business expenses.
Preventing Return Fraud
Taking active steps to prevent return fraud can save your business a significant amount of money. Here are a few tips to help you safeguard your business from fraudulent customers:
- Set up a clear returns policy: Publishing a clear return policy on your website is the first step to preventing return fraud. Your policy should explicitly state the conditions for acceptable returns, the time limit, required documents (receipts, tags, etc.), and your compensation method (store credit, coupons, or cash). Also, your return policy should be tough enough to deter scammers, while allowing honest customers to enjoy a hassle-free return experience.
- Take precautions during shipping: Use tracking numbers on your packages to help you detect when your customer has received them. And, if applicable, demand that customers provide their signatures after receiving their orders.
- Identify and ban repeat offenders: Identify buyers with high return rates and mark them as potential scammers in your system. You can decide to carefully scrutinize their orders when next they return an item or refuse to fulfill their orders if you’re certain they’re committing return fraud.
Setting up an anti-fraud system for your business
Implementing an anti-fraud system can help you detect fraudulent activities that may not catch your attention. There are several AI fraud-protection software tools on the market that integrate seamlessly with e-commerce storefronts or order fulfillment systems. These tools can help you detect fraud by analyzing customer behavior patterns to identify suspicious behaviors and detect high-risk transactions. Examples include Shopify POS, SEON, Accertify, and Fraud Filter.
Handling fraudulent returns after the fact
If you believe a return to be fraudulent, there are steps you can take to handle the situation and probably recover your losses.
- Get your facts straight: Accusing honest customers of return fraud can lead to distrust, which will negatively impact your brand image. Check your order history for records of suspicious returns that may have been perpetuated by the same buyer or are linked to the same address or product. Also, look for evidence to support your claim, such as tracking information, security markings, proof of use or intentional damage, etc.
- Have a conversation with the customer: If you believe you have enough proof to back up your suspicion, reach out to the customer and calmly explain why the return is not acceptable.
- Report to the appropriate authorities: If the buyer refuses to comply and you’re sure of your ground, try reporting them to the appropriate authorities. However, if you’re not so sure, it might be best to just cut your losses and move on. The authority you report the buyer to will depend on the kind of fraud you believe they committed. If the returned item never showed up at your store, report to the delivery service the customer claims to have used and tell the buyer that the loss has been reported. If the buyer returned a damaged or used item, report it to the marketplace or the buyer’s local police.
Prevent Fraud With GoShip
Besides taking steps to combat return fraud, ensuring the completion of your customer’s orders quickly, accurately, and in perfect condition can significantly reduce your overall return rate. GoShip can help you find reliable shipping carriers to fulfill your less-than-truckload (LTL) and full truckload (FTL) orders without hassle. Our platform eliminates the need for a broker by directly connecting small to mid-sized businesses with over 42,000 certified carriers across the US and Canada. Enter your shipment details in our online quotation tool to get the best rates from carriers around you today