It's advisable not to refund for an item being returned until you actually receive it back, as you may realise now, once you refund, there's not a lot you can do if the buyer decides not to return it.

I can definitely appreciate the customer service behind sending them a satchel so that they have no out of pocket expenses for returning an item, but if I may... I'd recommend allowing the buyer a choice. I usually say that I can send them a pre-paid and addressed satchel, or I'll reimburse P&H costs when I process the refund (I've only had to offer this a few times, but each time they actually opted to pay for post themselves, as they could get the item back to me - and therefore their refund - sooner, rather than waiting for the satchel from me).