Fraud can hit a business from multiple angles, and there are strategies you can employ to protect your business and your bottom line. Let’s look at return policies. Creating an effective return policy for your business and mitigating return fraud exposure requires a balanced customer service and security approach. Here’s what you need to know:

Key Steps for an Effective Return Policy

  1. Clear and Concise Policy – Ensure the return policy is easy to understand, prominently displayed, and communicated across online and physical stores.
  2. Define Eligibility – Specify conditions such as time limits (e.g., 30 days), required proof of purchase, and product condition (e.g., unused, original packaging).
  3. Provide Multiple Return Options – Offer in-store, mail-in, or online return processes for customer convenience.
  4. Use Technology for Tracking – Implement a system to track returns by customer account, receipt, or transaction to prevent abuse.
  5. Restocking Fees or Exceptions – Clearly state restocking fees for opened items, exclusions (e.g., final sale items), and warranty-based returns.
  6. Fast and Fair Refund Process – Process refunds quickly while verifying legitimacy to maintain trust and prevent disputes.
  7. Train Employees – Ensure staff understands the policy and can identify red flags for fraudulent returns.

In September 2024, Liz Young with the Wall Street Journal reported, “Return fraud poses a significant challenge to U.S. businesses, with substantial financial implications. In 2023, the National Retail Federation estimated that over $100 billion worth of merchandise was fraudulently returned in the United States.”

In addition to ensuring a smooth return process for most customers, an aggregate exposure of $100 billion demands proactive attention. Businesses should consider actions that will reduce their fraud exposure.

Actions to Bolster Defenses Against Return Fraud

  • Require Proof of Purchase – Mandate receipts or digital proof to verify legitimate purchases.
  • Monitor Return Patterns – Identify customers with excessive return behavior or suspicious claims.
  • Use Serial Number or RFID Tracking – Ensure high-value products match the original sale record.
  • Set Return Limits – Restrict frequent returners or require manager approval for high-risk returns.
  • Offer Store Credit Instead of Refunds – Discourages cash refund fraud.
  • Mark Returned Items – Use tags, stickers, or other identifiers to prevent resale and re-return fraud.

While scammers continually find new ways to exploit return policies, these are some common return fraud schemes and effective steps to prevent them.

  1. Receipt Fraud – Using fake, altered, or stolen receipts to return items for cash.
    • Prevention: Digital receipts, receipt verification software, and matching payment methods.
  2. Wardrobing (Free Renting) – Buying an item, using it, and returning it (e.g., clothes, electronics).
    • Prevention: Tagging items in a way that makes them unusable after removal and restocking fees for opened items.
  3. Price Swapping – Replacing price tags with cheaper ones and returning for a higher refund.
    • Prevention: Secure barcodes/tags and training staff to verify SKUs.
  4. Returning Stolen Goods – Shoplifters returning stolen products for a refund.
    • Prevention: Require proof of purchase, use anti-theft devices, and integrate POS tracking.
  5. Empty Box or Fake Item Returns – Returning an empty box or counterfeit version of the original item.
    • Prevention: Inspect returns before processing refunds and use product identification markers.
  6. Bricking (Electronics Fraud) – Returning damaged or stripped-down electronics while keeping valuable components.
    • Prevention: Serial number tracking and thorough inspections.

Much like how an effective anti-fraud strategy uses many overlapping processes, businesses that implement these strategies can maintain a customer-friendly return policy while minimizing fraud risks associated with returns.