Protect Yourself from Disputes with a Refund and Return Policy

Refund and Return Policy

Returns, refunds, and exchanges are inevitable. They are part of doing business no matter what you sell. In fact, 41 of shoppers buy with the intent of returning.

Refund and Return Policy

As a business owner, getting a return request or a refund request can be painful. It’s a sign that your products or services don’t meet your customers’ expectations. It also subtracts a little bit of money from your pocket, which is especially frustrating.

Even worse, some buyers use refunds and returns as opportunities to commit fraud. These bogus claims can cost you time, money, and your reputation with the card-issuing banks.

Fortunately, you can take a big step toward protecting yourself with a refund and return policy. This simple document will help you quickly (and painlessly) resolve conflicts with customers and card issuers.

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Free Download: Strategies to Reduce Refunds and Returns

What Is a Return Policy?

A return policy is a set of rules that explains to customers what can be returned and/or exchanged. It should also cover the reasons you’ll process a return and timeframe. There are two important components to a return policy.

1. Internal Policy for You and Your Team

First, there’s the internal policy that governs how you and your team behaves. It’s important that everyone who handles customer purchases and accounts understands the policy and follows it closely.

Your policy will vary depending on the nature of your products/services and your business model, but generally you should include these details:

  • What can be refunded, returned, or exchanged.
  • Which products/services are final sale (non-refundable for any reason).
  • The window of time they have to make a request.
  • The condition of the products or services (for instance, you might only refund software purchases if the files were never downloaded).
  • The process for initiating a return, refund, or exchange.
  • What they get for a return (e.g., money back, store credit, etc.).
  • How to contact you with any questions about the policy.

2. Documented Policy for Customers and Prospects

Second, there’s the actual written document – usually a web page – that you publish for customers and potential customers to read. This should be an easy-to-find page that outlines the entire policy in a comprehensive but clear manner.

A written policy lets you treat all refund and return requests the same way, as opposed to handling all requests on a case-by-case basis. Treating each request differently is unproductive, expensive, and opens you to accusations of bias and unfairness.

It’s important to make your policy available to customers before they purchase so there are no surprises. You don’t want customers complaining that they couldn’t find your policy. This means placing the policy (or at least links to it) in key places on your website.

  • Your footer
  • FAQ page
  • Chat feature
  • Shopping cart page
  • Checkout page
  • Sidebars

If your refund and return policy is especially tight (maybe you really can’t offer refunds), it helps to force your customers to check a box near their payment form that indicates their agreement to the return policy. This will also help your case if you ever have to defend yourself against a chargeback because you have evidence that the customer agreed to the policy’s terms.

In WP Simple Pay, you can add this type of checkbox to an embedded or overlay payment form using a custom field.

Refund and Return Policy

Customer-Centric Policies

It’s tempting to declare “No refunds!” but that’s rarely a smart strategy. The ability to return an unsatisfactory purchase is a big motivator for customers to buy in the first place. According to UPS, 68% of shoppers check a website’s return and exchange policy before making a purchase. So unless your product can’t be returned safely, it’s smart to accept returns.

A customer-centric policy is one that puts the customer’s needs first at all times. These kinds of policies often offer free return shipping, long request windows (90 days or more), and “100% satisfaction guarantees” that refund your money without even asking why you aren’t happy.

These types of policies are powerful marketing tools. There’s no doubt they can boost conversion rates because they eliminate a lot of the anxiety of making a purchase. 96% of people would shop with a retailer again based on an “easy” or “very easy” return experience.

That said, don’t feel the need to be overly generous with your refund and return policy just because it’s trendy. Some people will abuse your generosity or look for ways to commit fraud. It’s always important to make the right decision for your business, as opposed to doing what everyone else is doing.

For instance, refunds on services are complex cases. You can’t take back a service you’ve already performed. Offering unlimited, no-questions-asked refunds sounds like great customer service, but it also exposes you to fraud that could end up costing a lot of money, especially once word gets around that you’ll essentially work for free.

Refund and Return Fraud

When it comes to refunds and returns, there’s actually a lot of fraud. It costs U.S. retailers more than $18 billion a year, according to Appriss and the National Retail Federation.

Fraudsters try all sorts of tricks. They claim they received incorrect or broken products. They return different products than the ones they received (cheap knockoffs or potatoes). They claim services didn’t meet their standards even when you performed everything you promised.

If their tricks don’t work, many fraudsters stoop to the measure of last resort: the chargeback.

Inappropriate chargebacks are a serious problem. Signifyd discovered that a staggering 81% of chargebacks are attributed to “buyer abuse.” These are cases where the buyer received the product or service as promised, but decided to file a chargeback anyway. In a survey by the same company, 13% of respondents felt justified because “the company I purchased from is very successful and wouldn’t miss the amount of my purchase.”

When a buyer files a chargeback, they have to explain why. If the transaction was legitimate, they’ll often make something up to appease the card issuer. But then you’ll get the opportunity to defend yourself.

This is where your return policy comes into play. Your return policy is evidence that the customer was aware of the nature of the transaction before they engaged in it. You get to say, “Hey Mastercard, here are my refund terms. As you can see, this customer isn’t entitled to a refund.”

For instance, let’s say you have a SaaS product for which you charge monthly. You’re happy to cancel plans, but you always prorate the remaining time. You don’t refund for days where the customer had access to the product. So a customer who cancels on the 25th is still charged for 24 days of the month. (Seems fair, right?)

If a customer requests a chargeback because you refuse to refund the entire month, all you have to do is explain to the card issuer that your policy doesn’t offer that type of refund. (It also helps to have some type of evidence that the customer was aware of the policy, such as the checkbox at checkout we mentioned earlier.)

Of course, a refund and return policy doesn’t mean the card issuer will always be on your side. If your policy has ridiculous terms (like “we only process refunds if the customer uses the magic word “abracadabra”), the issuing bank will reject your defense. So try to keep your policy reasonable for your type of business, product, and industry.

Download this list of strategies that will limit the number of return and refund requests your customers make.

Find the Balance

If you’re too generous with your refund and return policy, you’ll open yourself to fraud. If you’re too restrictive, customers will choose other providers. Crafting a great policy, therefore, means finding the balance between providing customers with a good experience and protecting yourself against fraud. Once you decide where you’ll draw that line, make sure to explain it clearly in your written policy.