I think customer/store credit should automatically be available as a payment method once a customer logs in to his or her account. Our tedious policy now is to count misprinted or shorted tems and tally up the price and manually add a credit to a customers account. Then, when they reorder, we have to manually make a line-item on the order with a negative balance for that credit amount and delete the credit from the customer account page. It needs to be simpler than this.
I personally like the credit option much more than the refund option because we don't take as much of a loss due to the mark-ups.
I would also like customers to have a clear view of their store credit and be able to spend it on whatever they want or let it compound into more. This could make refunding order shorts easier and give the customer incentive to order again sooner.
Also we could use this funtion to set-up a loyalty program with repeat customers. It's great because of the margins.
We could offer say a $100 store credit per $1000 spent. If our profit margin is 60% then that $100 is really only $40 out of pocket. Most of our orders average in the $600-$1500 range so that $40 is fairly insignificant at the end of the day and a great way to keep them coming back for more.