Exchange Accounting Overview
Exchanges are integral to any return policy because they allow you to retain a portion of your return revenue and allow customers to get a product they love and become a loyal customer. There is no uniform way to facilitate exchanges on every Order Management System (OMS), including Shopify, but fortunately Pollen allows you to curate a smooth exchange experience for both yourself and your customers.
The purpose of this article is to help you understand why there are limitations with exchanges in an OMS, how Pollen facilitates exchanges and the impact of the interaction in your OMS.The Exchange Accounting Options article covers potential options for these limitations; however, reading this article is strongly recommended to help you understand and select the best option for your business.
In this article, we will cover:
- How an OMS handles Refunds (important to understand first)
- How Pollen facilitates Exchanges
- Limitations of Facilitating Exchanges in an OMS
*Examples/Images shown are from Shopify’s OMS
How an OMS handles Refunds
Your OMS is likely built to handle refunds only, so it’s important to understand how refunds function in your OMS in order to better understand the limitations of facilitating an exchange in your system. Your OMS, more than likely, does not have native support for exchanges (returning a product and adding a new product to previous order that has been fulfilled) because they do not provide the option to:
- Swap a product from a fulfilled order with another
- Transfer a sale from one product to another
- Refund a payment to anywhere other than the original payment method
- Associate a new product with an original purchase under the original order ID
When a refund for a product occurs , there are two separate interactions that occur simultaneously:
- Return – product is ‘marked returned’
- Transaction – money is issued back to the customer
Return – product is ‘marked returned’ and money always refunded to original source of payment
- Tells OMS that a product is being returned
- Return events are reflected in OMS reporting in the following manner:
Example: Single Return (non-exchange)
*Shown in OMS *Pollen platform
Pollen’s platform allows users to easily refund their customers, manually or automated, for any return or exchange with proper documentation to your OMS for all bookkeeping and inventory management processes.
Exchanges – more, less, or even
- This interaction includes money to be refunded to a customer’s original payment method or collected if owed more directly through merchants POS.
- Transactions are also reflected in reporting in the following manner:
- Creates an order adjustment (-)
- Item exchanged for less than original purchase amount
- Item exchanged for the same purchase amount
- Item exchanged for more than the original purchase amount
- Creates an order adjustment (-)
Example: Exchange Less (partial refund owed to customer)
Refund = Return Value – Exchange Value
Difference owed for refund is reflected in both Pollen and OMS with new order ID tied to original order ID. In the case of a return of the newly placed order, a straight forward return discussed previously is executed with proper documentation for continued proper bookkeeping and inventory management.
Example: Exchange More (partial payment owed from customer to cover difference)
The additional payment needed to cover the total cost of the new item being exchanged for is done through your current checkout environment. Pollen captures the payment when executed and then ties the order ID’s together.
Refund = Return Value + Returned Exchange Value Difference
In the case of a return for an item exchanged that required additional payment, the customer is refunded the full amount paid for both the original item and exchanged item with Pollen’s system tying both orders together. This is reflected in Pollen’s dash boards and reflected in your OMS for proper bookkeeping and inventory management.
Example: Exchange Even (No refund or payment owed)
No additional payment or refund is required, Pollen reflects this on both the old and new order placed for the exchange while handling the proper steps to maintain bookkeeping and inventory management accurate.
How Pollen Facilitates Exchanges
As previously stated, most OMS’s do not have native support for exchanges, only refunds. Below is how Pollen handles exchanges, using Shopify as an example, with the objective of preserving a seamless customer experience by enabling exchanges without requiring additional payment from the customer for items that cost the same or less than the item being returned to exchange.
When a customer submits an exchange via the Pollen customer portal, there are two primary components to the exchange: the return and the new exchange order:
- When the exchange processes, Pollen marks returned products as “returned” in OMS without refunding money to the customer, thus adding inventory back into stock.
- When the exchange processes, Pollen creates a new order in Shopify containing the product(s) selected in the exchange, mark it as paid, trigger fulfillment, and properly document for back office understanding.
Now that we understand that an OMS cannot natively facilitate exchanges, how refunds are facilitated and how Pollen facilitates exchanges in your OMS, we can outline the potential limitations or questions that may arise:
Limitation 1: Pollen marks products as “returned” in Shopify (return) without refunding money to the customer (transaction). This creates an unwanted positive return order adjustment in Shopify reporting without the negative transaction order adjustment to cancel it out.
Note: This occurs for both exchanges and store credit returns.
Why does Pollen do this? Marking products returned preserves product accounting, creates a “paper trail” for products, and allows for restock. In other words, it tells a merchant which products came back
How does Pollen do this? Shopify’s refund engine is used to tell Shopify that a product is being returned and, if applicable, restocked
Limitation 2: Pollen creates a new order in Shopify containing the product(s) selected in the exchange and marks it as paid. Since Pollen does not collect payment from the customer directly, the order does not always have a payment method (exchanges for less or the same amount), thus Pollen ties all exchange orders back to the original order in the case an exchanged item is returned and a customer is owed a refund.
Why does Pollen do this? Pollen has to get the new products into Shopify so that they can be processed and shipped to the customer.
How does Pollen do this? Pollen creates new exchange orders using your OMS order API, mimicking a newly placed order present within the admin.
Limitation 3: When Pollen marks products as “returned” from the event of an exchange, the tax is removed on the original order on the return event row, so your OMS may underreport taxes, but the tax difference is accounted for on the new exchange order as well as refund in the case of an exchange for less.
Can a customer be over refunded? No, your OMS will not allow for refunds that exceed the value of the order or item(s) and, in the event of an exchange, item(s) returned will not be refunded unless a manual override was executed from an employee in your back office.
Limitation 4: All exchange payments are captured in Stripe, a third party processor, at the time of exchange/return submission. Upsell payments do flow through your checkout system and are recorded/captured in your OMS with Pollen capturing and recording all actions with ties to original order ID.
There is no perfect solution for exchanges in an OMS, but Pollen makes it simple to execute for both retailer and consumer while never collecting sensitive information from your consumer(s). We’ve outlined the primary limitations that can occur, using Shopify as an example. There is not a one-size-fits-all configuration, but Pollen has created different options outlined in the Exchange Options Article to help enable the best exchange accounting process for your needs. Please read the article to determine which option works best for you and reach out to help@Pollenreturns.com if you need any additional support.