Sure, the customer is always right—but they can also be picky! Returns happen for all kinds of reasons, and when they do, your small business needs a refund policy that fits your needs and keeps the customer happy.
With today’s online retailers refunding customers without even returning their products, it can be hard to know what a good refund policy looks like. In this article, we walk you through crafting a refund policy that doesn’t break the bank.
We’ve even put together a refund policy template for you to download and customize so your refund policy is as unique as your business. Let’s take a look!
What is a refund policy?
A refund policy is the rules your business follows when giving money back to customers who return items.
Naturally, every business owner hopes their customers will adore their every purchase. But buyer’s remorse is real and more common than ever. A recent study found that nearly 80% of Americans have experienced buyer’s remorse, even after thoroughly researching a purchase. That number is even higher for impulse buys, which your business may rely on.
A refund policy is a delicate balance of keeping your customers happy and keeping your business afloat. A great refund policy lays out your business’s conditions for refunds, like refund eligibility and timelines, to help your team navigate the process smoothly while keeping your customers well-informed.
Why your business needs a refund policy.
A solid refund policy isn’t just good practice; it’s a key asset for any business. Here’s why you can’t afford to go without one.
1. Help prevent legal trouble.
Without a clear refund policy, customer refunds can turn into a real headache—and it’s easy to see why. When some customers have come to expect near instant refunds, they may get frustrated if it takes your business takes 5-7 business days to process yours.
With a well-defined refund policy, you can nip potential disputes like this in the bud by clearly communicating refund eligibility and repayment timelines. This level of transparency helps prevent misunderstandings and reduces the risk of that refund headache turning into a legal migraine down the road.
2. Give customers confidence.
Refund policies can even give customers the confidence to make a purchase. Since so many customers have experienced buyer’s remorse, knowing that your establishment has a return policy could establish your business’s trust in customers’ minds—and give them the nudge they need to take the purchasing plunge.
3. Establish clear regulations and policies.
Even with in-depth employee training, handling customer refunds can be stressful, especially if the customer is unhappy with their purchase. A refund policy helps guide your team through the entire process, ensuring consistency and clarity.
Another bonus? When you display your refund policy prominently, you set clear expectations with your customers from the start. Not only does this minimize misunderstandings, it gives you, your team, and customers something to point to when figuring out the way forward.
4. Build customer trust and loyalty.
A transparent refund policy also demonstrates your confidence in the quality of your products. After all, it wouldn’t make much business sense to offer refunds on a subpar product. A straightforward refund policy ensures your customers know what to expect if they’re not satisfied with their purchase, but it can also encourage loyalty when everyone’s on the same page.
5. Boost sales and customer retention.
Despite what you might think, a hassle-free refund policy can actually boost your sales— with 92% of consumers saying they’d buy again if the return process was easy. By crafting a customer-friendly refund policy, your team can transform a negative experience into a positive one and foster long-term customer satisfaction.
6. Cut down on fraud.
While most customers seek refunds with good intentions, there may be cases where others have less than honorable motives. Setting specific conditions for refunds—like returning items in their original packaging—can minimize risk and prevent your business from falling victim to refund fraud.
What to include in your refund policy.
Every business is unique, but every great refund policy hits the same few points to protect customers and businesses alike. Let’s break down what a great refund policy does step by step. You can even scroll down and follow along with for our free downloadable refund policy template!
1. How to return items.
Before your customers can receive a refund, they’ll need to return their items. To make the returns process as straightforward as possible, include details like whether your customers need their original receipt and packaging, where they can return their items, and if they should contact customer service before heading to your store.
2. What “refund” means.
This refers to what your refund actually entails. Is it a full cash refund? A partial cash refund? Store credit? Are refunds limited or invalid on particular items?
Depending on the products you offer, you might need to establish multiple refund protocols. This is because not all returns warrant a full refund, and other items shouldn’t be returned or resold (we’re sure you have a few items in mind). To boot, retailers often provide partial refunds or store credit for items returned after 30 days. Customizable, damaged, or sale items may be deemed non-refundable.
Communication is key: make sure it’s clear when your refund policy applies, when it’s different, and when it’s void. Here’s one example: “We provide full refunds for unused items returned within 30 days. Partial refunds may be given for used items or those returned after 30 days. Certain products, like custom orders, are non-refundable.”
3. Whether exchanges are allowed.
If you’re not sure about the logistics of providing cash refunds but you do want to keep customers happy, consider an exchange policy for items not eligible for a full refund. Think of exchanges as a short-term store credit refund. Here’s an example of how that could be phrased: “We accept exchanges within 30 days of purchase for items of equal or lesser value.”
4. Product warranties and refund exclusions.
Include relevant warranties and refund exclusions in your return policy. Common exclusions include clearance items, gift cards, and undergarments.
You should also decide early whether your store is willing to shoulder responsibility for processing warranties on damaged items covered by the manufacturer. If you are, it may contribute to customer good will—but if you’re not willing to take on that paperwork, you should make it clear that customers are responsible for contacting the manufacturer for manufacturer warranties.
5. Refund timeline.
Your refund timeline will be one of the most referenced sections in your policy. Be sure to include how long customers have to return items and how long it takes to process refunds.
Example: “Returns are accepted within 30 days of purchase. Refunds will be processed within 7-10 business days after we receive the returned item.”
6. Restocking fees.
While relatively uncommon, businesses that receive a high quantity of returns may charge a restocking fee for returned items. If you charge a restocking fee, make it as clear as possible to avoid surprising your customers with an unexpected fee.
Example: “A 15% restocking fee applies to all returned electronics.”
7. How refunds are issued.
Finally, your return policy should specify how refunds are issued based on payment type. While businesses typically provide refunds to the original form of payment for credit and debit card purchases (this is good fraud prevention!), cash and gift card refunds may require a different process.
One example of policy language: “Refunds will be issued to the original form of payment. If the original payment method is not available, store credit or an electronic funds transfer may be provided.”
Where to display your refund policy.
Even the world’s best return policy is no use if your customers can’t find it. To make sure your refund policy is readily available and clear to everyone, display it in these key areas:
1. Website
Naturally, your website is one of the first places your customers go to find information about your store. To make it easy to find, create a dedicated refund policy page and include the link in your website’s footer. This ensures your customers can find it regardless of where they are on your website. You can also include your refund policy in the Frequently Asked Questions section to address common customer queries.
2. Receipts
Since most businesses require the original receipt to process a refund, a condensed version of your refund policy should be included on both printed and digital receipts. Bonus points for adding a link to your complete refund policy on digital receipts, if applicable.
3. Customer emails
To ensure your e-commerce customers are aware of your refund policy, include a brief summary in your order confirmation emails, along with a link to the full details on your website. A friendly reminder about your refund policy in post-purchase communications like shipping updates can also go a long way to producing customer goodwill.
4. Checkout
Display a summary of your refund policy directly at the checkout point. This means that customers looking for your refund policy at purchase or during refund have a copy to reference at their disposal.
5. Physical signs throughout the store
You may also choose to post your refund policy in strategic areas of your store like changing rooms and the entrance for easy reference. That way your customers can read through it while they wait or while passing by your establishment—whether it’s open or not.
Feel like posting your return policy everywhere is overkill? Consider this: unlike your team, your customers don’t receive any onboarding training. They’re essentially flying blind when they enter your store—and they’re informed by big-box experience. Displaying your refund policy in multiple spots increases the likelihood that they’ll read it before they buy and sets expectations for your small business’s etiquette with clarity.
Get your free refund policy template here and customize away.
Feeling overwhelmed at the thought of writing your refund policy from scratch? We’ve done the heavy lifting for you. Our customizable refund policy template helps you:
- Save time and effort. Skip the tedious task of creating a policy from scratch so you can focus on other aspects of your business—like getting more customers through the front door.
- Boost customer confidence. Our clear and transparent refund policy template ensures your customers know exactly what to expect, giving them the confidence they need to make a purchase.
- Present a professional image. A polished and organized refund policy demonstrates your commitment to excellent customer service, helping your business stand out from the rest.
Our refund template nails all the basics while allowing you to customize each section to reflect the unique needs of your business. Your customers may even be impressed by how much thought you’ve given to customer experience, even if it’s different from what they’re used to.
Download our PDF refund policy template here.
Download our Word Homebase refund policy template here.
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Refund policy template FAQS.
How do you write a good refund policy?
Writing a good refund policy begins with the basics. Identify any legal requirements in your area. Then, build out your refund policy by scenario (like exchanges, refunds, and store credit). Explain each process, including important factors like refund methods, deadlines, and how to manage international returns. Use clear and concise messaging and seek professional guidance if you have any questions.
How do you explain a no-refund policy to customers?
Explaining a no-refund policy to customers is crucial for transparency and managing expectations, but it can be tricky. Politely explain why the product or service is non-refundable. For example, customizable items cannot be resold and therefore are not eligible for refunds. Communicate empathetically and offer alternatives like exchanges or store credit, if possible.
How long should a refund policy be?
The duration of a refund policy varies depending on the business and the nature of the products or services offered. While retail and e-commerce stores typically offer a 15-30 day refund window, other businesses may extend it up to 90 days. Regardless of its length, making sure it’s both easy to find and understand will make it easier to manage customer expectations and avoid confusion.
Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.
