What are returns really costing you?

By Frida Wikingsson, Product Manager, nShift

Frida Wikingsson is a Product Manager at nShift, where she works on its returns and delivery management software. She focuses on the post-purchase experience, including how retailers handle returns and meet requirements such as the EU digital withdrawal function. Her work helps shape features across nShift Returns.

Returns are working capital you have already frozen.

Ask a retail finance team where the cash is and they will point at stock, suppliers, and the lag on card settlement. Few will point at the returns process, yet that is where a surprising amount of working capital sits. A return is money you have already collected, now tied up, alongside stock you cannot put back on sale because nobody can find it. The higher the return rate, the more capital is parked in that state on any given day.

The scale is easy to underestimate: the National Retail Federation put 2024 US returns at around 890 billion dollars, about 16.9% of sales, up from 8.1% in 2019. Europe is moving the same way: Geopost’s 2025 E-Shopper Barometer, covering 22 countries, found returns rising while shoppers rate the process as slightly harder than the year before. For most retailers, returns have stopped being a tail-end operations cost and become a balance-sheet line that happens to be managed at the warehouse door.

The expensive part of a return is the time, not the postage

Most returns budgets focus on the visible costs: the reverse postage, the restocking work, the occasional write-off. The larger cost is harder to see because it never appears on an invoice. It is the time the return spends in limbo.

Picture a single returned item: from the moment the customer drops it at a parcel shop to the moment it is scanned, booked in, inspected, and either resold or refunded, that item earns you nothing while tying up two things at once: the cash you will eventually return, and the stock you cannot sell because it is somewhere between the customer and your shelf. Every extra day in that gap is a day the money is unavailable and the item edges closer to a markdown. A jacket returned in week one of a season is worth full price. The same jacket resolved six weeks later may only clear at a discount. Returned stock is a wasting asset, and time is what wastes it.

That is the cost many retailers underestimate. It doesn’t always appear as a returns line, but rather as cash flow that is tighter than it should be, and end-of-season stock that sells for less than it could have.

Why returns sit in limbo

If the cost is time, the obvious question is why returns take so long to resolve.

The first answer is that refunds tend to move on a complaint rather than on a rule. The item comes back, joins a queue, and the refund is released when the customer chases hard enough or an agent clears the backlog. The money moves on pressure, not on a defined event, which makes the timing unpredictable and usually slower than it needs to be.

The second answer is visibility. Many retailers cannot follow a return as a single journey, from the customer starting it, through the carrier network, to received and resolved. The customer sees a parcel they have sent that has gone quiet. The warehouse sees stock arriving without context. Finance sees a refund liability with no clear release date. Nobody owns the whole timeline, so the return drifts.

Cross-border returns stretch the gap further. An item coming back from another market passes through more carrier hand-offs and more customs steps, and each one is a place the parcel can go quiet and the refund can stall. For UK retailers selling into the EU, that distance is where cash and stock stay out of view the longest.

Decide when the refund fires

The most useful lever is often the one retailers think about least: decide, on purpose, which event releases the refund and returns the item to sale.

That might be the first carrier scan, once you have proof the item is genuinely on its way back, or receipt at the warehouse, or another control point you trust for your categories and your fraud profile. The specific choice matters less than making it a deliberate rule rather than a reaction. When the refund fires on a defined event, the cash moves predictably, the customer is paid sooner, and the stock can be cleared back to sale while it still holds its value.

For anyone selling to EU consumers, that choice is now partly written into law. Since 19 June 2026, the digital withdrawal function introduced by Directive (EU) 2023/2673 requires a clear online way for shoppers to withdraw from a purchase, and it puts a clock on the money: the refund is due without undue delay and within 14 days of the customer telling you they are withdrawing. For goods, you can usually hold reimbursement until the items are back or the customer shows proof of return, which makes the refund-release event a compliance decision as well as a cash-flow one.

This is where visibility pays for itself: Friluftsmagasinet, the Norwegian outdoor retailer, redesigned their returns experience on the nShift platform and and described the result as: “Now when we receive returns at the warehouse, we register the returns with a few clicks and use the invoice number to identify the order in the return portal. This way the stock is updated right away and the employees use a minimum of working time.” When the stock updates the moment it arrives, it can go back on sale that day, and the refund can fire on that same event. The same team also reported fewer calls from customers asking where their return had got to, which is the visibility working at the front end too. That same principle – stock updated the moment a return arrives, a refund that fires on a defined event rather than a chase – is what nShift Returns is built around.

A connected returns flow, visible from the moment a customer starts a return through to resolution, is what makes a refund-release rule enforceable rather than aspirational.

A good return earns the next order

None of this means making returns harder for the customer – on the contrary. The National Retail Federation found that 67% of shoppers would be put off buying from a retailer again after a poor return experience, and 76% say free returns influence where they shop in the first place. McKinsey’s 2025 consumer research found that more than 65% are likely to abandon a basket if the return policy looks inflexible. The return is part of the buying decision, so squeezing it as a pure cost tends to work against the next sale.

The aim is a faster, clearer resolution that protects margin while keeping the experience easy. A shopper who gets a quick refund and a simple process is more likely to come back, and the stock they sent in is on the shelf in time to sell at full price; speed and visibility serve the customer and the balance sheet at the same time.

It fits where customer priorities are heading. McKinsey found that delivery speed, the headline feature for years, fell from the top consumer priority in 2022 to fifth in 2024, overtaken by factors including cost and the assurance that an order arrives when promised. Certainty is now doing the work that speed used to. Returns are the same story in reverse: customers value knowing where their return is and when their money is coming.

The number worth managing

If a retail leader wants one figure to hold returns to account, it is returns cycle time: the days from a customer starting a return to it being resolved, refunded, and either back in stock or written off.

It’s a more significant number than return rate alone, because it captures the part that costs money. A 20% return rate resolved in three days ties up far less cash and far less saleable stock than a 12% rate that takes three weeks. Cycle time is also the one figure that finance, operations, and customer experience can all read the same way – the window in which your cash, your stock, and your customer’s goodwill are tied up together, and every day you take out of it is handed back to all three.

Returns will keep rising. That is the shape of modern retail, and trying to suppress them usually costs more in lost sales than it saves. The retailers who come out ahead are those who stop treating returns as an unavoidable cost and start regarding them as working capital they can free: visible end to end, resolved on a rule, and measured by how fast the cash and the stock come back.