Em, trust all's well with yourself and Rowan. Just a few ideas:
RETURNS - Put 50% of all monies received against invoices for returnable items into 60 day (prefarably 90 day) interest account for an initial 6 month period while charting actual monthly returns. After 6 months modify rate of transfer to reserve a/c as necessary and modify each quarter thereafter. Tough. Discipline. Play absolute havoc with cashflow and, I daresay, have your accountant climbing the walls. But, after 18 months you'll likely be glad that you did.

SALES: If I were an independent UK publisher of quality books I'd seriously be looking at vending machines. two big players are about to stitch up BAA airports and the UK rail network - but there may yet be a few gaps in the rail network. I'd go for hotels (you know how it is - hard day's travel - arrive late - everything closed - nothing open - a book before bedtime.) I'd avoid lease arrangements and go for outright purchase (around (2000 gbp per unit,and write down over 3 years)and maybe look to a 50:50 capital, 60:40 (in your favour)sales split with a small hotel chain with sites in Edinburgh, Manchester, Newcastle, Birmingham, Cardiff and/or other trade/conference/cultural centres. And I'd look at viability of university locations. AND, if an independent UK publisher I would be seriously looking to get machines into Europe - (where book buying via machines is well on the way to being established)and, as an opening gambit I'd be talking to both the British Council to investigate possibilities of siting machines at their locations (maybe shared with other UK independents) and the equivalent of what used to be the DTI about export initiative grants etc. I'd be very, very careful about choosing my hardware supplier - and probably go for a Spanish manufacturer and supplier for a better, more robust deal. Sorry for taking up your time, but you did ask for ideas.

Sorry about typos in the above comment -

Haarland, thanks so much for the innovative ideas. The returns idea is excellent, but sadly we have nowhere near the necessary cash buffer required to make that a viable option. Also, it doesn't get to the root of the problem, which is eliminating returns.

On the sales idea, it's outstanding. Rob had the same thought a few years ago - we'll have a chat and see if it's viable. I think you're onto something with the idea of moving away from complete dependence on the trade - whether through vending machines or some other means, I think that's crucial.

Thanks again - most appreciated.

If interested check out: www.vendingbooks.es/
and take a look at the video-

I've heard of one book vending machine company (Novel Idea Vending) is that one of the 'big players' you mention and who are the other guys?

According to Amanda O'Brien: "The Earl of Iveagh, heir to the Guinness fortune, and Alexander Waugh, grandson of novelist Evelyn Waugh, have formed a business alliance that intends to put literature dispensing machines alongside the chocolate variety in every station in the country.
...
On offer will be self-contained short stories of between 7,000 and 12,000 words in length, as opposd to novels or extracts, and, because they are designed to be read in forty minurtes or so, they will be printed on one sheet of paper and will fold up like a map. Each story will cost £1.

Authors selected so far include PG Wodehouse, Dorothy Parker, Oscar Wilde, and Katherine Mansfield. The board of editors is no less illustrious and includes Beryl Bainbridge, Martin Amis, Dame Muriel Spark and William Trevor. The latter two have even written short stories especially for this imprint."

Travelman is the company that dispenses those stand-alone "novelettes": http://www.travelman.co.uk/