What is Sales Return in SAP FICO?

In this article, we will discuss the meaning of sales return and its purpose in SAP FICO.

An item is returned to the seller by a customer or client as a sales return.

In SAP FI, the whole products that the client has returned are managed using Sales Returns. They are employed in the consumer goods business.

All returns are due to quality issues, never to misdeliveries. It is frequently necessary to follow the exact route that the returned goods take. Items being returned must be sent for inspection.

Also, Read: What is SAP FICO [Uses of FICO]

What is Sales Return in SAP FICO?

  • Whenever time a consumer returns an item for a cash refund or a credit to their account, regardless of the reason, there is a corresponding decrease in the number of actual sales that occur.
  • Typically, a product flaw or a bad customer experience prompts a sales return. Although they don’t require a financial investment from the business, sales returns might be regarded as decreases in sales.
  • Because they enable a business to consistently serve clients with high-quality goods and services, sales returns are a crucial component of the sales process.
  • In a way, getting customers to return things also aids in creating positive customer relationships, which are crucial for retaining current customers and attracting new ones.

Types of Sales Return in SAP FICO

  1. Sales returns with cash refunds
    This covers reimbursements provided to clients who return their goods and receive cash as a reimbursement.
  2. Refunds on Purchases via Credit-Memo
    This entails the client returning the product in exchange for a credit memo towards future purchases.
  3. Purchase Credits
    These are documents that shops provide when they offer discounts on specific products as a result of returned goods.

Check out: Sub Modules of SAP FI And SAP CO [Advantages & Disadvantages]

Reasons for Sales Return in SAP FICO

When a consumer or client sends a product back to the seller, it is referred to as a sales return. There are a variety of justifications for returns by customers, including:

  1. Excessive number: A buyer may have placed an order for more items than they require, or a business may have unintentionally sent excess goods. The merchant will accept returns of these items from customers.
  2. Shipment delays: If a consumer decides they no longer need a good, they may return it. A consumer might return a good if, for instance, they require it by a certain date and it comes beyond that.
  3. Expectations of the consumer: A consumer may place an online or telephone order for goods without seeing it first. The consumer may decide to return the item if it arrives in a different size or color than anticipated.
  4. Unintentional purchase: Sometimes, while shopping, a customer purchases an item that is inaccurate and not what they intended.
  5. Products that are damaged or flawed: Throughout the production or transportation processes, certain products are damaged or flawed when delivered. Consumers generally return these items to the business to receive a replacement.

The return policy of a company is up to them. Possibilities include charging a restocking fee, allowing free returns within a set duration, or only allowing returns with a receipt.

Several businesses provide shop credit or exchange options. Accountants can record these transactions in a sales returns account once they have confirmed that a return complies with the company’s policy.

What is Record Sales Return in SAP FICO?

  • Create a sales transaction for each type of sale: debit cash, credit cash, and cash. Debit the credit sales and accounts receivable for a credit sale. Credit the relevant sales tax liabilities account on the balance sheet if you are collecting sales taxes.
  • Balance sheet asset accounts include cash and receivables. The sales account is a part of the income statement.
  • An essential component and absolute requirement to maintain the books’ accuracy is properly recording the refund. The item must also be logged back into inventory after the return procedure is complete, or it must be divided into returned products that are discounted for upcoming sales campaigns.

Impact of Sales Return

  • Sales returns are accepted as a regular aspect of conducting business since it is anticipated that certain sales returns may occur in the future as a result of the scarcity of particular products or their flaws.
  • Sales returns therefore shouldn’t worry businesses too much. Companies should figure out why this is happening if monthly sales returns are dramatically rising.
  • A fault with the company’s products or services may exist if the sales returns and allowances account is consistently rising.
  • Companies should offer better warranties to ensure client happiness because faulty items or swiftly changing fashions may be a big contributing factor to this.
  • Also, businesses should make sure they are paying their consumers the right change if this account is consistently growing because doing otherwise could lead to them returning goods and generating sales returns.
  • In the event that this does occur, businesses should take care to avoid returning too little change because doing so would also lead to dissatisfied customers and maybe reduced sales.

Read: Enterprise Structure in SAP FICO

How to record a Sales Return in SAP FICO

  • Specify the return and the return type:

Establish the customer’s initial payment method and the business’s method of refunding payments first. Note whether the client used cash or store credit to make their purchase.

When a client or customer purchases a product, they typically have store credit and a predetermined grace period before they must make payment. You can better track and balance these transactions if you are aware of the customer’s method of payment for a return.

  • Check that the return complies with the company’s policy

The next step is to confirm the return adheres to the authorized corporate return policy. A time period within which returns are accepted is sometimes specified by businesses.

  • Keep a sales return transaction record

To record the sales return on the company’s accounts, utilize the return information next. The sales return and allowances account can be used to record payments for both cash and credit sales.

To keep the accounts balanced, you can keep track of where this money originates. You might show a drop in the cash account when you provide cash refunds. Reduced accounts receivable result from a return of an item bought on credit.

  • Updated inventory

Returned goods are occasionally added back to an organization’s inventory. For instance, a retailer may resell an item of usable, undamaged apparel that a consumer returns. They now have this item in their stock. This item can be included in the inventory account record, and the cost of items sold can be reduced by the same amount.

How to Reduce Sales Returns in SAP FICO

Establish quality control:

The use of quality control will guarantee the absence of defects in the final product. To avoid mistakes in manufacturing, make sure staff members have received the appropriate training.

Explanation of Product Characteristics:
Customers discovering that the item they are receiving does not match the product description is one of the most frequent grounds for product returns.

To ensure that buyers are guided in their expectations of the goods and pleased with their purchase, be sure to appropriately define the product’s attributes.

Research product trends:
To avoid selling out-of-date products, it’s critical to stay current with market trends. Businesses can stay competitive and determine the best things to market by keeping an eye on product trends.

Maintain Regular Contact With Your Clients:
By doing this, you can make sure you get customer feedback and have a chance to fix any issues with your goods or services before they are returned.

What is Sales Return in SAP FICO

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Sales returns are an inescapable aspect of running a business because it’s hard to ensure that every consumer is totally happy with their purchase.

If a sales return happens to extend into the following accounting period, it might offer a deceptive impression of income, so all businesses should work to reduce it. As a result, the revenue for the earlier accounting period will be higher and the revenue for the later accounting period will be lower.