Returns create a timing gap
The sale, customer refund, product disposition, and any later inventory recovery can fall in different reporting periods. A profit model may estimate the expected cost correctly while the cash forecast still misses when the outflow occurs.
Build a refund timing curve
- Group historical refunds by the number of days after the original order.
- Separate products or categories with meaningfully different patterns.
- Record refund amount, associated charges, and inventory outcome.
- Flag seasonal, promotional, or launch periods that behave differently.
- Estimate the share of recent sales likely to reverse in each future period.
Connect the curve to settlements
Apply expected refund outflows to the settlement periods in which they are likely to appear. Keep the forecast separate from recognized sales profit so finance and operations can see both economic performance and available cash.
Use a reserve based on evidence
Set an internal cash buffer from recent refund behavior, product mix, and event risk. Revisit it after launches, peak periods, or quality changes instead of holding the same percentage indefinitely.