Credit memos cost. Plain and simple. It costs to generate them without earning us revenue. If it’s returned goods because it was the wrong goods shipped, the goods were defective or they were damaged in transit, it can also cost us a customer.
A simple report is to just measure the percentage of credit memos to invoices generated over time. If it’s increasing, you need to investigate why.
What would be even better is if you were had a field on the credit memo for the reason returned. (For example, wrong goods shipped, broken in shipping, not wanted, etc.) Then you can use Excel’s Pareto Chart to see which reason is causing or costing you the most depending on the values you choose (e.g. number of credit memos versus dollars.) Anything over 80% needs to be addressed.
What I like about this is that sometimes we react to the wrong problem and this gets to prioritize where to focus first.
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