How to Become a Dropship Supplier
Chapter 4: Invoicing, Payments & Returns
Efficiently handling invoicing, payments and returns of dropship orders is essential to running a successful dropship program. The whole point of becoming a dropship supplier is to make more profit for your company, so this is a very important step – as with everything else we have learned so far, right?
Invoicing & Payments
Traditional business-to-business wholesale relationships you have already established are inherently stronger than a brand new dropship partnership. With the stronger and more trustworthy relationships, these retailers will most likely be on “net terms”. Therefore, you are probably already accustomed to the “ship then pay” principle. However, with dropshipping, “pay then ship” is actually the norm in most cases when first starting out. Of course, you can eventually move to net terms for certain dropship businesses after they gain more trust to where you’re confident they will be able to pay their bill.
But, we are going to focus on the “pay then ship” method since it is the most common approach in the dropship industry. So, because the retailer has to pay you before you can ship out an order, you will need to figure out how you are going to invoice them. Being a dropship supplier, you will likely want to incorporate order fees and shipping costs into your invoice to the retailer. This can prove difficult when using an order automation solution since those fees and costs are not calculated at that point in time. As a solution, dropship suppliers typically have a policy agreement with retailers beforehand and end up editing the order with the order fees and shipping costs before billing an invoice to the retailer. It helps when your retailers have a card on file that you are authorized to automatically charge when new orders come in since you will not have to wait on and keep track of unpaid vs. paid invoices constantly. Adding to your policy that credit card or bank authorization is required will make the dropshipping automation process run as smoothly as possible.
Business-to-business dropship orders should be treated, in most cases, the same as business-to-consumer orders. This means there should be the same level of attention and resources dedicated to dropship orders to make sure everything runs smoothly and efficiently for your retailers.
Returns & Refunds
Ah, returns and refunds. The part of retail just about everyone would like to avoid, but an almost certainty you’ll have to deal with. Establishing a return policy is absolutely essential as a dropship supplier as with any other aspect of the ecommerce industry. Dropshipping returns can be tough to get sorted because retailers have to determine what type of returns they are willing to allow, and you as a supplier have to determine what returns you are willing to accept as well. Sometimes, retailers will completely mimic your return policy on their online store or modify their own policy to fit within yours. Additionally, some retailers will create different return policies and sometimes have to take a loss on returned items depending on what your policy entails.
When determining you return policy, you should take into account how long you are willing to accept returned orders. Some suppliers have a more relaxed 60-90 day window they will accept returned orders, but others are a little more stringent only accepting returns with a 14-30 day window. You will also need to create a Return Merchandise Authorization (RMA) form that your retailers will need to fill out before they are able to send the product back. Using an RMA form allows you to be able to accept, deny and manage returns based on certain criteria so you don’t just get a large flow of orders being shipped back to you on a regular and unmanaged basis.
For damaged items, it is recommended that you request an image and description of the damage on the RMA form as well as a shorter time frame than your normal return policy since most damage happens during the shipping process. You will also need to decide if you are going to implement any restocking fees, whether you will pay the return fee and if you are going to accept returns for mistake orders such as wrong sizes. This all varies from supplier to supplier and must make sense for your specific business since there is no right answer for the best policy across all companies.
Some dropship suppliers don’t even offer the option to return items, but may offer refunds in certain cases. Usually, this will be for damaged items, as mentioned above. So, you will have to determine if your company is ready to handle an actual influx of returns, or if you will simply just provide a refund in some cases. By not offering a return policy, you could have the ability to shift time and resources to other areas of your business that they would otherwise be spending on returned inventory, however you may lose customers from this “hard line” policy.
Cancellations go right along with returns and refunds. You will need to establish a cancellation policy that gives retailers a notice on how long they have to cancel their order before it gets shipped out. Most dropship suppliers ship out their orders within 1-2 days, which doesn’t give retailers a lot of time to cancel their orders. Be sure to make the cancellation policy very clear to your retailers when they first apply to resell your products to avoid uncessascary mishaps and miscommunications in the future.
We have now concluded that in order to become a dropship supplier, you need to establish your ability to fulfill orders, create shipment policies, provide a detailed and easily accessible inventory feed, supply a solution to automate inventory and orders, arrange invoicing and payments and organize return and cancellation policies. Easy as pie, huh? Offering a dropship program as a part of your wholesale company does require a lot of work, but in the end it could make a significant impact to your sales and bottom line.