The purpose of the paper is to explore the dynamics of formal incentives offered by manufacturers to retailers to return old products and buyback price offered by unauthorised recyclers, which is deterrent to formal reverse flows in the supply chain and to suggest suitable incentive mechanism to maximise the returns. A system dynamics approach is used here to model the reverse supply chain network to capture the dynamics involved in volume of returns of used products, the buyback incentives, the external recycler's buyback prices and role of channel partners. The model provides policy guidelines in terms of appropriate incentive policies and other appropriate interventions to improve the volume of used product collection from retailers. The product return rate is better if the organisation react very fast with respect to any actions initiated by unorganised recyclers. It is not possible to stop returns to unauthorised recyclers but one can improve the returns in the formal channel by improving the incentive mechanism. The current model is not designed to incorporate decay in value of the returned products and it does not include the effect of state legislation on returns. The model incorporates the cause and effect relationship in a competitive market, the real costs involved in collection and disposal and delays involved in decision making. The dynamic model can be best used even for other industries, which are into practice of reverse supply chain.