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RMA (returned merchandise authorization) processing is a common requirement with manufacturing companies.  RMA processing can include the following functions:  

Entering an RMA for items expected to be returned by customer

Furnishing an RMA number to customers for reference on return shipments

Printing an RMA for customer notification and receiving purposes

Tracking open RMAs

Returning undamaged items to stock

Remanufacturing used items for resale

Repairing items for return to customers

Invoicing items at zero value for warranty repair

Issuing credit memos for returned item credit

RMA Sequence of Events

A typical RMA undergoes the following sequence of events.    

It starts with an RMA request

An RMA gets initiated when a customer requests an RMA in order to return an item.  A return can be requested for a variety of reasons.  You may have a return policy within so many days of shipment, which is often required with web orders.  The product may be defective and is being returned for replacement under warranty or to be repaired.  You may remanufacture used versions of your products for resale and you pay customers to return used “cores.”  

An RMA number is sent to the customer  

The next step is to create an RMA and furnish the customer the RMA number.  The customer references this number with the item that gets shipped back to you.  

Returned items are received and assessed  

When the returned item is received, the RMA is used to identify the customer and the item being received, along with any notes stating the reason for the RMA.  The item is then assessed to determine what needs to be done to process and resolve the RMA.  

The RMA is resolved as needed  

The RMA is then resolved as needed.  You may need to return the item to stock as a new or used version of the item.  You may need to repair the item and return it to the customer.  You may need to issue the customer a credit memo for compensation or issue a customer refund check.  

Recommended Workflow  

Use an RMA SO Type

We recommend that you create an SO Type that is used exclusively for RMAs.  This way your RMAs can be isolated from standard sales orders on screens and reports.  

Initiate each RMA as a quote

Initiate ach RMA as a quote.  Quote quantities are ignored by MRP and enable RMAs waiting to be received to be tracked separately from live sales orders.  

Assess the item, then convert the RMA to a sales order

Once the RMA item is received, assess the item, decide what further processing is required, and adjust the quote details accordingly.  You then convert the quote to a sales order and then proceed with final processing, which can involve issuing the customer a credit memo, returning the item to stock, repairing the item and returning it to the customer, scrapping the item, or refurbishing it for resale as a used item.  

RMA Setup

Create an ‘RMA’ SO Type

Go to the SO Types screen and create an RMA SO type.  We suggest you give it an SO type ID of ‘RMA’, a description such as ‘Returned Merchandize Authorization’, and a prefix such as ‘R’, ‘RM’, or ‘RMA’.  

Create an RMA print layout  

You can create a modified version of the quote form to be used as an RMA  form.  Go to the Forms Edit – Quote screen and save the quote layout to a new name such ‘RMA.rtm’, then edit the layout.  Change the main title to “RMA’.   You may wish to hide the Price and Amount fields.  

Add the layout to the RMA SO Type

Go to the SO Types screen and in the Quote Layout field against the RMA SO the RMA quote layout.  Whenever you print a quote against this SO type, the RMA quote layout will be used.  

Use alternate item IDs as needed

When processing an RMA, in many cases you must use an alternate ID to represent the returned version of the item.  

Use the standard ID when the product is undamaged

If the returned item is completely undamaged and can be returned to stock for resale as is, you can use the item’s standard item ID in the RMA.  

Create a used version when needed  

If the returned item is functional, but has been used by the customer, and you wish to resell it, you cannot use the item’s standard item ID because the used version is technically a different item with a different inventory cost and selling price.  In this case, you must create an alternate item ID to represent the “used” version.  

Apply a prefix or suffix to the standard Item ID

One way to create a “used” Item ID is to add a prefix or suffix to the standard item ID.  The letter ‘U’ for example, for used, could be appended on the end of the standard item ID, perhaps preceded by a dash.  

The used version is a P item

The used version should be designated as a ‘P’ (purchased) item rather than a manufactured item because it has no bill of material and is technically purchased from customers.  

Give the used item an estimated cost if purchased for remanufacturing

If you pay customers for used products for remanufacturing purposes, enter an estimated cost against the used version that represents the typical price you pay for the used item.  If you don’t pay customers for used items, leave the estimated cost at zero.  

Give remanufactured products their own item ID

Some returned items are cleaned up, repaired, given new components. Repainted, and sold as a “remanufactured” version.  In this case, the remanufactured version must be given its own item ID.  A remanufactured item is an ‘M’ (manufactured) item and is given its own bill of material that contains the replacement components and secondary outputs that might be yielded during the refurbishment process.  

You may wish to use different item categories

When you create different versions of the same item, give some thought to your item categories.  You may wish used or remanufactured versions to be in separate categories so that their sales and cost of goods sold can be listed separately on the income statement from your regular item sales.  

RMA Workflow Details

Enter a quote to initiate an RMA

When a customer requests an RMA, initiate the RMA by entering a quote.  You may also want to enter header notes to describe the purpose of the return for the benefit of your receiving department.  You have the option of entering line item detail, or you can wait until the items are received and enter the details later.  If you know exactly what is to be received and there is an established price, enter line item detail as needed.  

Furnish the customer with the RMA number

Furnish the customer with the RMA number and instruct the customer to label the returned items with that number verbally or by Emailing the RMA quote.  This way the receiving department knows what to do with the items when they are physically received.  

Returning an undamaged item to stock

In this scenario, the returned item is fully undamaged and has never been used and can therefore be returned to stock for resale as a new item.  

Go into your RMA quote.  If a line item already exists for the returned item, change the quantity to a negative quantity.  If you don’t have a line item, create one using the item’s standard item ID and enter a negative quantity.  After the RMA is converted to a sales order and gets picked, the negative quantity causes the item to be received back to stock.

Enter the price that will be credited to the customer when the RMA gets invoiced. This price may be the original amount paid or it may be less if you charge a restocking fee.  

Returning a used item to stock

In this scenario, the returned item is in good condition but has been used by the customer.  It cannot be returned to stock as a new item, but it can be received to stock as a “used” item for resale.  

Go into your RMA quote.  If a line item exists for the item’s standard item ID, delete the line.  Enter a new line for the “used” version of the item, which has an alternate item ID.  Enter a negative quantity.  After the RMA is converted to a sales order and gets picked, the negative quantity causes the used item to be received to stock.

Enter the appropriate price that is credited to the customer for used products.  

Sending a replacement item

In this scenario you have assessed that the returned item is defective and the customer is to receive a replacement item at no charge.  

Go into your RMA quote.  The first thing to do is to make sure you have a line item for the replacement shipment.  If the returned item already has a line item, make sure it has a positive Qty.  If the line item does not exist, create one and enter a positive quantity.  When the RMA quote gets converted to a sales order and the line item gets picked, the positive quantity is what creates a shipment to the customer for the replacement item.  

The second thing to do is to resolve what to do with the actual returned item.  If it is unusable and is to be scrapped, do nothing further.  If it can be received to a stock as a used version, create a second line item for the “used” version, which has an alternate item ID of its own.  Make sure this second line item has a negative quantity so that it gets received to stock.  

Scrapping a returned item  

In this scenario you assess the returned item and determine it is damaged beyond any use as a used version or remanufactured version.  Therefore, it should be scrapped.  

Go into the RMA quote.  If the line item already exists, delete it.  This means that no further processing will be done against the item.  Physically scrap the returned item.  

If the customer is to receive credit for the returned item, a credit memo can be sent from your financial accounting system because no inventory items are involved.  

Converting the RMA to a sales order

Once the returned item has been assessed and the quote RMA has been modified for any of the scenarios listed above, the next step is to convert the RMA from a quote to a live sales order.  Once the RMA has been converted into a sales order, it can be picked, shipped, and invoiced in the normal fashion.  

Issuing a credit memo

Issuing credit memos against the customer account for returned items is common with RMA processing.  Any invoice with a negative total amount is automatically converted into a credit memo at time of invoice creation.    

Stock items are given a negative quantity  

If the line item is a standard or used version of an item to be returned to stock, it is given a negative quantity.  The negative quantity is multiplied by the price, which results in a negative total price.  

Descriptors are given a negative price  

Descriptors are used for giving credit when there is nothing physically to be returned to stock.  In this case, the quantity is a positive amount and the price is negative amount.  The quantity is multiplied by the negative price, which results in a negative total price.  

Generating a zero value invoice

Zero-value invoices are common with RMA processing and are generated on occasions where you need to replace returned items at no charge.  The invoice generates a cost of goods sold for the replacement item and provides you and the customer a record of the no charge shipment.