When your business operates in the digital ecosystem, it is very important to operate within the legal boundaries to avoid any potential issues. And if you’re involved in the eCommerce business, whether it’s an online store, digital software or a SaaS, a couple of the most basic legal aspects you must address are handing return or exchange requests and processing refunds.

What is a refund and return/exchange policy

In a majority of counties there are laws that protect the rights of the consumers. These laws dictate the bare minimum of a refund and return policy that you have to abide to. A well-written refund policy can boost your sales and increase profits, while overly restrictive refund policy can scare potential customers away and cost you dearly.

Return and refund policy should typically address the following few points:

  • Clearly state if returns, exchanges and refunds are accepted by a company.
  • The number of days customers have to return or exchange a product.
  • List any products that may be exempt from returns.
  • Outline any other requirements that customer has to meet to be eligible for a refund.
  • SaaS companies often include information about prorated or partial refunds.
  • For physical products it’s a good practice to include some details about shipping charges in the event of a return.

Since refund policy is a legal agreement, it can help an online business in the instances when some of the customers claim their rights are not being respected. Let’s see exactly why you need a refund policy on your website.

Why do you need a refund policy?

We have already stated that a refund policy is a legal agreement. If you run an online retail business or an e-commerce website, the chances are that you already have some policies on display for your customers.

While the privacy policy agreement is the only one that is required to be put on display by the law, the terms and conditions agreement and return and refund policies are optional, but highly recommended by legal advisors. Be aware, though, that some countries/states require retail sellers to display a return policy.

If you run an online business where you are directly selling to customers, having a return/refund policy is highly advised. This doesn’t only apply to eCommerce stores and retail stores, but to drop shipping companies and SaaS businesses as well.

Refund policy

In addition to the above, having this document on display has more benefits for the business. If people see a clear return policy for an item, it will be easier for them to make an informed buying decision. It’s easier to convince someone to make a purchase when they have all of their questions answered, including those regarding refunds.

In fact, if you go and visit help pages on eBay, you will be able to read that this large company requires all stores to have this type of policy because items that come with refund policies tend to sell far better than those without.

Refund policy can also protect your interests by helping you to play it safe on the legal side. If you have informed the customers about your policy and it respects the minimums defined in the regulations of the business’ origin country, you don't have to be afraid of losing a case in court should a customer bring the problem to the court of law.

What to include in a refund policy

People don't have a tendency to read long and boring legal documents online. On the other hand, you have to provide all the necessary information. This is why it is advised to break down your return/refund policy into smaller sections. This will increase the readability of the document, make it easier for customers to find what they need and, at the same time, protect you legally.

Despite what you sell, your refund/return policy should usually contain these three sections:

  1. How many days a customer has to return the product. Does the counting start from the moment they order it, or from when the product gets shipped to them?
  2. If the customer does return a product, you have to specify what kind of refund they are eligible to get. Some stores allow customers to get similar products or get a store credit in the value of the purchased item, while others return the cash spent on the product.
  3. At last, you will have to specify who will pay for the return shipping. Some stores don’t charge customers that are in the same state or country as the business is, while others offer free return shipping regardless of customer’s location.

If you run a company that sells digital products (downloadable software, SaaS, digital games, etc.) it is advised to provide these two additional sections:

  1. If you allow your customers to get refunds on digital purchases, you have to clearly specify on which ones. In case return/refund policies are different for specific products, you will have to specify each one separately.
  2. Sometimes businesses that sell digital products online offer refunds only in certain situations. In this case, you will have to specify each of the situations and provide a short description to each one of them.

If customers can make in-store, online and over-the-phone purchases, it is advised to specify the refund/return policy for each one of these. You can do this by adding three very short sections to your agreement (policy for in-store, online and over-the-phone purchase).

What to avoid in a refund policy

As we have already stated, any legal document has to be very clear and easy to read. Try to remember that a return/refund policy should make your customers trust you and feel safe to purchase from you.

You should give your best to make the refund process as simple and as smooth as possible. In other words, avoid things such as too many requirements for a refund, difficult and unintuitive refund process, and refund processing fees.

Another thing that you should definitely avoid is inconsistency in your policy, simply because it will get people confused. If you have multiple online stores, make sure to have the same refund/return policies on display on each one of them.

Why “no refunds” policy is usually bad for business

A “no refunds” policy is generally a bad idea if you do any businesses, especially if it’s online. Here are the main reasons to consider when you are thinking about whether you should have a “no refunds” policy:

  1. You will most likely lose a customer. It is generally a far better idea to give your customers a store credit than to inform them that they have no refund/return rights whatsoever.
  2. An angry customer will cost you far more than a refund. When you take your customers money and they end up with a product or service they don’t like and have no options to get their money back there is a good chance they will get angry. You might very soon have to deal with a lot of bad reviews even if they’re untrue. It is really not worth the risk, so do your math carefully. Business advisers often say that taking care of your reputation should always come before taking care of your money. By not refunding, you might save a couple of bucks, but you will risk losing hundreds if not thousands of dollars in lost opportunities due to a bad reputation.
  3. It will slow down your sales. If you put a “no refunds” policy on display on your website. Customers who are still deciding whether they should buy from you or not might go for the latter option to avoid possible risk.

If you provide a highly detailed refund/return policy that protects your interests as well, you don't need to have a separate “no refunds” policy. Instead, you should specify in your return/refund policy in which cases the customers won't be able to claim their rights (damaged goods, goods pass the expiration date, etc.).

Why “money back guarantee” policy can be good for some businesses

One of the main concerns of online shoppers is if they will be able to get their money back if they are not satisfied with the product or service. Shopping online is quite different than in a retail store. This is why you should offer more incentives for the customers to complete the sale. One of the ways to do so is to make them know that you have a “money back guarantee” policy.

Money back guarantee

This might be especially beneficial for online stores selling digital products or the products that can be damaged in transport or by customers. People generally want to feel reassured when they are buying online. If you have a “money back guarantee” policy on display on every product page and checkout page, you will increase your sales and generate more revenue.

Besides removing barriers to purchase, a “money back guarantee” can also differentiate your business from the competition and put you on that sweet spot in your niche. You can sell products at higher prices than the competitors who don’t have a money-back guarantee and people would still purchase in your store. That’s how powerful this policy is.

When you have a “money-back guarantee” policy you will appear like a trustworthy company in the eyes of your prospects and customers. Since you are willing to give them back their money if they are unhappy with the service or the product, that means that your product/service works well and your company stands behind it.

On the other hand, this might not be a good option if you are selling products with an expiration date or perishable products. If this is the case, you can mention the reasons why you don’t have a “money-back guarantee” in your refund/return policy. Your customers will definitely appreciate this additional information.

The downsides of having this kind of policy are: more work for your finance and customer service departments, and, unfortunately, exposure to manipulation (some people like to get their hands on the new stuff, experience it, return it and get their money back).

In the end, if you are confident in the value and the quality of the products/services you are selling, you should definitely consider adopting this policy. The potential gains are far higher than the risks it involves.

Where to display refund policy

Generally, you want to include a link to your refund policy in the footer of your website so that it’s accessible from any page. If you take a look at the two popular eCommerce websites, eBay and AliExpress you can see that they pack all of their policies in the footer section of their websites. You also have the option to provide the link to the refund/return policy in the customer service section, which again, you can link in the footer of your home or landing page.

The rule of the thumb to follow here is to provide a link to your refund/return policy on each product and service page. You can either leave it as a pure link “return and refund policy” or inform the customer how long they have to return the item, money-back guarantee (if you have it) and who pays for return shipping. Then you can attach the text “see details” and link it to your full policy, just like in a picture below.

eBay return policy link

Sample free refund policy template for digital products

Generic refund policy

Thanks for purchasing our products (or subscribing to our services) at [website] operated by [name].

We offer a full money-back guarantee for all purchases made on our website. If you are not satisfied with the product that you have purchased from us, you can get your money back no questions asked. You are eligible for a full reimbursement within 14 calendar days of your purchase.

After the 14-day period you will no longer be eligible and won't be able to receive a refund. We encourage our customers to try the product (or service) in the first two weeks after their purchase to ensure it fits your needs.

If you have any additional questions or would like to request a refund, feel free to contact us.

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Sample free refund policy template for physical products

Generic refund policy

Thanks for purchasing our products at [website] operated by [name].

In order to be eligible for a refund, you have to return the product within 30 calendar days of your purchase. The product must be in the same condition that you receive it and undamaged in any way.

After we receive your item, our team of professionals will inspect it and process your refund. The money will be refunded to the original payment method you’ve used during the purchase. For credit card payments it may take 5 to 10 business days for a refund to show up on your credit card statement.

If the product is damaged in any way, or you have initiated the return after 30 calendar days have passed, you will not be eligible for a refund.

If anything is unclear or you have more questions feel free to contact our customer support team.

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Sample free refund policy template for perishable products

Generic refund policy

Thanks for purchasing our products at [website] operated by [name].

Due to the nature of our business and products we sell, items that expire sooner than 1 month from the date of the purchase are not eligible for a refund.

For any other items to be eligible for a refund, you have to return the item you have purchased to us within 7 calendar days of the purchase. The item must unopened and in its original condition. Contact our customer services department to get a free shipping label.

If our products arrived damaged, rotten or contaminated in any way, please contact us right away and we will be happy to send a free replacement regardless of its expiration date.

If anything is unclear or you have more questions feel free to contact our customer support team.

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Use our professional refund policy generator to create attorney drafted policy tailored specifically for you and how you run and operate your website or mobile app.

Making refund policy easily accessible on your website can increase your sales and help built a trustworthy reputation among your customers, as well as reduce the time it takes potential customers to make their decision.