Not sure why you believe that the payment for the order is processed instantly.

I place an ecommerce order on Day 1. I select “Pay on Delivery” as my method of payment. I receive my product on Day 3 or 5 or whenever, and then pay with Credit Card against delivery. Ergo, the ecommerce company processes my payment many days after I place the order with it. This is not only true for me but for a majority of ecommerce shoppers in India, 60% of whom apparently opt for “Cash on Delivery” or “Pay on Delivery” payment mode. So, payment for the order is NOT processed instantly for a majority of ecommerce orders in India.

Now, coming to Refund, I’m not familiar with the entire end-to-end Returns & Refund business process but, at the minimum, it comprises the following steps:

  • Collect Return Item from Customer
  • Ship to Warehouse
  • Ship to Seller
  • Verify that Returned Item complies with the ecommerce company’s policy regarding returns (e.g. clothes should be returned unwashed.)
  • Initiate Refund Payment
  • Customer sights Good Funds in his or her bank account.

These steps take a few days or maybe even a couple of weeks, so refund is not processed instantly.

It won’t surprise me if the above steps take N days and the refund actually happens only after, say, 2N days. That’s because ecommerce is a very thin-margin business where a good amount of profit (or reduction in loss) comes from extremely tight cashflow management. So, an ecommerce company may purposely sit on the customer’s money for a few more days than absolutely necessary so that the float helps improve cashflow. There’s nothing wrong with this practice as long as the company predefines its refund processing period in the contract and sticks to it.

While on the subject of float, the bigger source of float – and cashflow management therefrom – comes from Supplier and Seller Payments. I’ve heard unverified reports that suppliers and sellers are paid 60 days after they have shipped their goods to the ecommerce company. This enables the ecommerce company to enjoy a substantial float.

I even remember reading on these very pages of Quora that many leading ecommerce companies are constantly on the “cashflow treadmill” and would shut down overnight if they stopped getting money, for whatever reason, even for 30–45 days.