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5 Reasons Your POS Software Can and Should Be Your Ally in Preventing the Dead-Serious Problem of Return Fraud.

- By Bob Twain


The U.S. National Retail Federation estimates return fraud costs the industry $9.6 billion a year. With that much money to lose, retailers can and should use all of their available tools to protect themselves.

How much money are you losing because of return fraud?

I'll bet a dollar to a donut that it's more than you think! Fortunately it's fairly simple to recoup the money you were once losing without making your return policy painful for customers and employees alike.

The following are five reasons your POS software can protect you against return fraud.

Reason #1 - POS Software features help you track return statistics.

When almost 9% of a retail store's returns are fraudulent, it is important to be able to track your return statistics.

According to researchers at the Return Exchange, the following statistics are 'red flags' that your store may be a victim of return fraud.

  • Your return rate has increased in two of the last three years.
  • Average markdown rates following a return are increasing.
  • The percentage of returned merchandise you are able to resell has declined.
Many POS Software systems offer features that allow you to easily track and access this information with the click of a button. This knowledge can empower you to make policy changes or update your point of sale software to better arm you against return fraud perpetrators.

Additionally, Return Exchange has found that 8% of all return fraud is committed by store employees.

Behavior that can be tracked, such as the number of tender overrides, nonreceipted returns, and manager overrides, should be reviewed on a regular basis to reduce employee theft.

Many POS Software systems also offer password protection features. These features allow you to protect certain areas of your system and to run real time reports to determine if a particular sales associate handles a higher than average number of returns.

Reason #2 - POS software features enable you to print digital receipts.

Return fraud often occurs when an item is stolen and then returned. The perpetrator has the funds returned to a card that wasn't used to make the purchase. They also often take cash or even gift cards in return for the stolen item.

Digital receipts arm you with the ability to verify a return, even when your customer doesn't have a receipt. They also enable you to return the funds to the same card that they were paid with.

And they ensure that the item was actually paid for in the first place! If a digital receipt of the purchase doesn't exist, then you could have a thief on your hands and proper action can be taken.

Digital receipts also eliminate the customer that presents a 'fake receipt.' If you train your employees to access the digital receipt for every return, then you virtually eliminate this type of fraud.

Digital receipts also enable you to have less rigid return policies which makes for better customer service and happier customers. All of which effect your bottom line positively.

Reason #3 - POS software offers check fraud protection.

Another way that return fraud is perpetrated is by check fraud or returning merchandise purchased with a fraudulent check before the check clears.

By having a check verification system tied directly into your POS software you are able to instantly compare a customer's check to a negative database of bad check records and your customer's checking account can be immediately accessed to determine sufficient funds.

While check verification systems can operate independently of your point of sale system, the benefit to having your check verification system tied directly into a POS system is that the transactions, information, and all necessary tracking of the accounts are done automatically. This eliminates the arduous paperwork of independent verification systems and adds extra security for your customers because all transactions are run though a single, secure point of sale system. The following companies are among the largest Check Verification services in the country:

Reason #4 - POS software features allow you to track customer purchases, and returns, whether you have one store or twenty.

One of the most common types of return fraud are the 'renters.' These are the people that purchase a product, use it, and then return it the next day for a refund often returning to a different store to make their return. Many point of sale software programs offer real time tracking of customer purchases and returns. This enables you to access a customer's purchasing data, even if they purchased the item the day before. This means you can stay on top of repeat offenders. Of course this leaves you with the policy problem of how to handle the repeat offenders, however you are better armed with the information.

Reason #5 - Tracking returns by receipt and customer is the best way to thwart fraud.

Receipt fraud is easily perpetrated. Receipts can be scanned, altered, and printed in your dressing room or bathroom because the tools are portable. Additionally, customers can copy their receipt for a purchase of something like a pair of shoes, acquire several pairs of those shoes, and return the item several times with copies of the receipt. However, if you are tracking returns by a customer then that fraud is easily tracked and caught.

If your POS system can track receipted returns, then you're ahead of the game. However, if you're not also tracking returns by customer, then they can return still return an item every day until their receipt expires.


So how do you go about reducing return fraud?

Here are 10 simple steps that you can take to crack the problem:

  • Use your POS to track the "questionable" returns. You know, those returns you take to be a good retailer that offers great customer service, but you were suspicious because it was over the 30 days, the product was obviously used heavily, and they didn't have the receipt! So when a customer get's three strikes, their out! Don't accept anymore returns from them.

  • Use your POS to post and display special instructions/notes for a customer. That way, if you have a customer that is a habitual returnee, sales associates are aware of it at the point of sale and can take extra care to scrutinize the return and follow return policies.

  • Use your POS to post your return policy on your receipt using your customizable receipt features and consider changing the message frequently to avoid 'fake receipts.'

  • Use your reporting system to track the number of returns that each sales associate takes. This enables you to see if/when a single employee is taking an unusual number of returns and you can examine the return information closely to make sure that policy is being followed and everything is on the up and up.

  • Use your POS to assign security levels to associates. This feature allows you to be the sheriff. You can determine what information your employees have access to and potentially eliminate internal return fraud.

  • Use your POS to set a cashier return limit. This is another stopgap feature that gives you the final authority on a return.

  • Use your POS to view multi store customer information. This means that you can see if a customer purchased an item at one store and is then trying to return it at another store. This alone doesn't indicate fraud but may cause associates to take a closer look at the return.

  • Use your POS to track your daily/weekly/monthly return rate. If the numbers rise significantly, you can take extra measures to examine why.

  • Use your digital receipt feature, if your POS software has it, to make certain that the receipt being presented by a customer is an original.

  • Train your staff thoroughly in all return policies and procedures. This is important! If your sales staff doesn't know how to properly accept and process a return, you're much more susceptible to fraud.

Finally, keep your policy posted for all customers to see, and make sure that your staff is well versed in the policy. Return fraud is a problem that all retailers have to deal with, but it doesn't have to keep you up at night. AND it doesn't have to result in return policy changes that make your customers jump through hoops.

I don't want to give you the wrong idea! I'm absolutely NOT suggesting that you go and create super strict return policies.

In fact, I believe in the opposite. In order to be successful you should have a very generous return policy and gladly take things back without putting the customer through the ringer.

However, you need to keep your generous return policy in check by utilizing the intelligent trackings systems that we suggest. This will stop the offenders from taking advantage of your graciousness without punishing your good customers.

Embrace your POS!

Using the reporting, tracking, and security features that your POS system offers will go a long way to reducing fraud and letting you sleep at night.

To Your Success!

Bob Twain



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