When the parcel arrives, press Mark received and settle. Untick Restock on damaged items to keep them out of stock. You can change how it is settled, or refund less.
Refund
The plugin creates a WooCommerce refund for the returned lines with the right share of discounts and tax. It goes through the payment gateway when the gateway can refund. If it cannot, such as cash on delivery or bank transfer, the refund is recorded as manual with a clear note, and you pay the customer yourself. If a gateway refuses a refund, nothing is recorded, you see the error, and the request stays on Received so you can try again.
Store credit
A single use coupon locked to the customer’s email, valid for the days you set. It works in the classic and block checkout. A manual refund is recorded on the order, so your totals stay true. When your prices exclude tax, the coupon value is the net amount, because WooCommerce takes fixed coupons off before tax. That way the customer gets back what they paid.
Exchange
Customers can swap for another variation of the same product at the same price, if it is in stock. A linked free order is created with the new variation and takes its stock, when the request is approved or when the parcel arrives, as you choose. The original order is not edited. The returned item goes back in stock on arrival.