How to Write a Refund Policy

A refund policy defines the processes and rules for when customers want to return the products or services they purchased from you and get their money back. It’s often required by your credit card or shopping cart company as part of maintaining PCI (Payment Card Industry) compliance. Plus, it’s just a good, fair business practice to post a refund policy.

As a business owner, you can set your own refund rules. The important thing is that they are communicated clearly to customers in advance of their purchase.  

A good refund policy answers the questions customers have when the item they purchased from you does not work out. It reduces conflict and ambiguity, and improves customer service. It also helps your employees manage customer expectations by giving them a documented policy to reference. 

Here are some of the components you’ll want to address in your refund policy:

Items to be Returned 

Which items can and can’t be returned? Once opened, some items, like food, simply can’t be returned safely. You might still honor a refund even if the item can’t be returned or re-sold depending on the scenario. 

Condition of Items 

You may want to stipulate that returned items must be in a specific condition to be re-sold. That means the customer may need to return packaging, as well as the item itself, in order to qualify for a refund. If the item appears to be used or worn and if a return would detract from the item’s value, you may also want to state that returns will not be honored.      

Time Limit 

How long from the date of purchase do customers have to return the item and ask for a refund? Common time limits range from 7 to 30 days.  

Shipping

If shipping costs are involved, who will pay? 

Processing Time 

How long will it take to process the refund once the item is returned?  

Money 

How will the money be returned? Will it be credited to the card on file? What if the customer paid with cash or a check? Will you only provide store credit?   

Requirements

Will customers need to fill out a form, request refund approval, or use a specific shipping return label? What instructions do you need to provide for proper return requests and processing?  

Fees

Will there be a restocking fee, cancellation fee, return processing fee, or any other fee that reduces the amount of the refund?  

The first step is deciding how you’ll answer the questions above. You might be tempted to adopt a ‘no returns, no refunds’ policy, and this may be the right policy in many cases. However, your refund policy is a chance to build trust with customers, and a rigid policy could cost you sales. Often a ‘no questions asked’ refund policy can increase sales in the long term. Only a small percentage of people will take advantage of it.  

Once you’ve determined the specifics of your refund policy, you can start writing it. Post it on your website and near your cash register or the checkout areas of your store. 

Next, make sure you have a smooth process in place for handling returns on a timely basis. Most stores have a separate checkout area or customer service desk to process returns so they don’t slow down the regular checkout lines. Employees should be trained on how to talk with customers, how to accept the returned items back into inventory for resale or return back to the vendor, and how to use the cash register or shopping cart system to process returns. 

You can even turn returns into a positive experience for everyone. If an item is the wrong size, you may be able to convert the return into an exchange for a different size so the sale is not lost. A great sales person can also provide upsell opportunities for new or similar items to the returned item. Proactively, your store can sell warranties at the time of purchase for select items.  

The more customers you have, the greater the chances you’ll have a customer who asks for a refund. Be prepared with a fair, well-documented refund policy.

Looking for additional tips on managing your business finances? Don’t hesitate to reach out!