When it comes to crafting a refund policy, being a business owner means that you can establish your own rules so long they are communicated to your customer clearly in advance of their purchase.
A good refund policy reduces conflict and ambiguity by outlining the procedures and terms under which a return/refund can occur. In doing so, it improves customer service. Your employees will appreciate having a documented policy they can share with customers, and your customers will be able to accurately assess the risk of making their purchase ahead of time. Furthermore, your credit card or shopping cart company will most likely require one to maintain PCI (Payment Card Industry) compliance. It’s always a good, fair business practice to establish and publish a thorough refund policy.
Here are some of the components you’ll want to address in your refund policy:
Eligible Items for Return: Which items can be returned and which can’t? Some products can’t be returned safely after opening (such as food products). You might still honor a refund of money or credit, even if the item can’t be returned or re-sold.
Condition of Items: You may want to stipulate that returns can only be made if the items are in a condition to be re-sold. This could mean that to qualify for a refund, the customer also needs to include their item’s packaging when they initiate their return.
Return Time Window: Your business model and industry will often dictate the length of time that is appropriate for a customer to initiate a return. Common time limits range from 7 to 30 days, and during the holidays, many retailers even extend their return windows to 90 days.
Shipping Requirements: If shipping is required to return an item, you’ll want to ensure your refund policy addresses which party will be responsible for shipping fees, how returns should be packaged, and what mail carrier is authorized for the return.
Processing Time: When can customers expect to receive their refund? Managing customer expectations surrounding refund turnaround is also something you may want to address with your refund policy.
Cash vs. Credit: If a return qualifies for a refund, how will the money be returned to the customer? Via the payment method used, cash, a mailed check, or store credit only?
Processing Procedures: Will customers need to fill out a form or request refund approval? What instructions do you need to provide them for proper return requests and processing?
Fees: Will there be a re-stocking fee, cancellation fee, return processing fee, or any other fee that reduces the refund amount?
Answering the above questions is the first step to drafting your company’s refund policy. You might be tempted to establish a “no returns, no refunds” policy, which could be the right thing for your business, depending on many factors. On the opposite spectrum is the “no questions asked” policy, which could increase sales in the long term by lowering the risk for your shoppers. (Nordstrom, for example, is well-known for its generous return policy). Keep in mind: your refund policy is a chance to build trust with your customer, and a rigid policy could result in lost sales or repeat customers.
Once you have thoughtfully considered the topics outlined above, you can begin drafting your written policy. It may also be a good idea to have your lawyer review the policy prior to publishing. Once the policy is finalized, post it on your website and in checkout areas of your store.
Next, make sure you have a smooth process in place to handle returns on a timely basis. Most brick-and-mortar stores have a separate checkout area or customer service desk to process returns to avoid slowing down the regular check-out lines. Employees should be trained to speak with the customers appropriately, accept the returned items back into inventory for resale or return to vendor, and use the cash register or point of sale system to process the returns. A well-trained employee can even create opportunities to convert a return into an exchange for a similar item that better suits the customer’s needs.
With an increase in customers will always come an increase in likelihood that there will be a customer who requests a refund. However, with a clear, fair, and well-documented refund policy, your business can be prepared to handle any return.