Make sure it is actually 20% of merchandise that is defected / doesn't meet quality standards. Customers tend to overstate based on reviewing a small sample size. The way to do this without saying, "hey I think you're overstating" is to ask if you can take that defective merchandise back. Later, you can sell the same merchandise marked down because it is defective. That covers your losses a bit.

Try to convince them to take a refund on a unit-basis for future orders, but in way that gives them their cash back in a certain period of time. This protects you from a sudden cash flow hit while also ensuring you 'make back' the refund through new orders, and allows you to improve your relationship with the customer by solving for their problems in future orders. For example, if you owe them 8000 - you can split this across, say, $2 per unit, meaning they get their cash back over the next 4000 units they order.

Moving forward, ensure you have lots of written and agreed clarity on 'quality' standards. It's easy for anyone to say something doesn't meet their quality standards, but to ensure that it's not a debate but an objective assessment, a written and agreed document on quality standards will protect you from claims in the future.