Handling Purchase Returns With Suppliers

A tile dealer receives forty boxes. Six have cracked corners. He calls the supplier, the supplier says 'send them back, we'll adjust it in the next bill'. The boxes go on the truck. Four months later, nobody can say whether that adjustment ever happened.

Purchase returns are rarely dramatic. They are small, annoying and easy to let slide, which is exactly why money leaks through them. The fix isn't clever. It's a consistent way of recording what you sent back, what the supplier agreed to, and what actually came off your payable.

What counts as a purchase return

• Damaged or defective goods found at delivery or soon after
• Wrong item or wrong variant supplied
• Quantity or quality that doesn't match the order
• Excess goods the supplier agreed to take back
• Expired or near-expiry goods, where your agreement allows returns

Whether a supplier must take something back depends on your agreement and the goods. Some suppliers accept returns within a few days only, some never take back opened items. Get the terms in writing, even a WhatsApp message, before you place large orders.

Document it before the goods leave

The best time to deal with a return is while the evidence is in front of you. Photograph the damage, note the quantity, and write down the original bill or order reference. Tell the supplier the same day, and ask what they want: a replacement, a credit against future purchases, or a refund.

Record it so stock and payables both move

A return has two effects. Your stock goes down, because the goods have left. And what you owe the supplier goes down, because they've agreed to credit you. If you only do one, your books are wrong either way: the shelf looks emptier than the system, or you keep paying for goods that went back.

In Billy, a purchase return is recorded as its own document against the supplier, so the quantity comes off stock and the amount reduces what you owe. Don't edit the original purchase bill to hide the return. Keeping the bill as it was and the return as a separate entry gives you an honest history, which is what an auditor or your accountant will want to see.

1. 1Inspect and set aside the goods you plan to return
2. 2Agree the resolution with the supplier in writing
3. 3Record a purchase return against the supplier, referencing the original bill
4. 4Send the goods with a challan or note showing what was sent
5. 5Follow the credit through to the next payment, and check it was applied

Chase the credit, don't assume it

Suppliers are busy, and credits slip. When you pay the next bill, look at the supplier's statement and confirm the return was deducted. If it wasn't, raise it right then, with your documents in hand. A supplier balance that doesn't match your own is nothing unusual; leaving it unresolved for six months is.

This is also why a regular look at what you owe each supplier is worth the time. We go through that routine in supplier management and payables tracking. The full buying cycle from order to bill is in from purchase order to purchase bill.

Tax angles belong with your accountant

Returns can have tax consequences, including how credit or debit notes are issued and reported. The rules change and depend on your registration and the goods, so confirm the right paperwork with your CA instead of guessing. We won't pretend to cover that ground.

Reduce returns at the source

If one supplier causes most of your returns, that is data. Count how many returns each supplier generates in a quarter and raise it in your next conversation. Sometimes a packing change fixes everything. Sometimes it's a sign to find another source.

A practical tip for busy weeks: keep a single shelf or box for goods waiting to go back, with a note on each stating the supplier and the bill reference. Returns that sit loose in the stock room tend to get sold by accident, resold to a customer, or simply forgotten until the supplier's return window has closed.

And when you sell, you will face the mirror image of this problem, which we cover in returns and exchanges at the counter. If you need a returns flow that fits an unusual trade, talk to us on the contact page.