Refund Policy Requirements for Returned Merchandise
If it is easier for the cardholder to file a chargeback than secure a refund, the merchant is asking for trouble. Learn how a business’s return policy can influence the risk of chargebacks.
The merchant’s state and card networks have requirements about how a business communicates its return and cancellation policy.
State laws usually require the bare minimum. Merchants are advised to reference their local laws, but most states just require a brick-and-mortar merchant to post these policies near the cash register.
The card associations have stricter rules. For brick-and-mortar merchants, the policies must be printed on the sales receipt (below the signature line) and use a legible-sized font. By including the information close to the signature line, it is assumed the customer will read the policy before signing.
For eCommerce businesses, the cancellation and return policy must be stated on the website. During the checkout process, there needs to be a link to the terms and conditions. Customers need to tick a box indicating they’ve read and agree to these conditions.
How the Return Policy Influences Chargebacks
Friendly fraud is the leading cause of chargebacks. The vast majority of consumers engage in this practice because of convenience. It is easier to contact the bank than deal with the merchant’s official return process.
Consider the following:
- 81% of recent survey participants admitted to filing an illegitimate chargeback because they “didn’t have time to contact the merchant.”
- Only 14% of consumers adhere to credit card regulations and contact the merchant for a refund before initiating a chargeback.
- A consumer who has filed a chargeback is nine times more likely to do it again.
- 40% of cardholders who successfully file an illegitimate chargeback will attempt another in the next 90 days.
There are two faulty business practices that make it seem like the bank is the easiest, no-hassle solution for a refund:
- The merchant’s restrictive return policy
- The merchant’s subpar customer service
Once a merchant has determined the best ways to improve customer service, it is time to address the return policy.
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10 Tips for Writing a Chargeback-Proof Return Policy
Here are 10 ways a merchant can improve the business’s return and cancellation policy to reduce the risk of chargebacks.
1. Prevent Returns from Happening
Before merchants start editing their return policy, they need to take a step back. It might actually be possible to prevent the return from happening in the first place.
Review the product and service descriptions. Are they accurate, detailed, and easy to understand? Then, check the product images. Do they zoom in on details, capture the item from different angles, and accurately portray color options?
If customers don’t know what they are buying, there is an increased risk of returned merchandise.
2. Consider a “No Questions Asked” Policy
The more flexible the return policy, the lower the risk of chargebacks. Consumers are tempted to file illegitimate chargebacks with untrue reason codes if they don’t qualify for a traditional refund because of restrictive policies.
Obviously, there are certain situations where it isn’t wise to accept any and all returned merchandise. For example, intimate apparel or seasonal items. However, if merchants can be flexible, even if it’s not in all situations, they’ll be better off.
3. Clearly Define “All Sales Final” Situations
For merchants who cannot offer any wiggle room in the refund policy and must prohibit all returns, make sure the consumer knows, without a doubt, that the sale is final.
Inform the shopper multiple times in multiple locations. To avoid trouble, this policy needs to be crystal clear before the sale is finalized.
4. Make Cancellations “No Strings Attached”
Cancelling a recurring payment can be challenging for the consumer. There might be feelings of embarrassment, remorse, regret or even anger.
Disputing a “cancelled recurring transaction” chargeback can be difficult. In many situations, it is the customer’s word against the merchant’s. Therefore, it is especially important to prevent these chargebacks from happening. One way to do that is to offer a simple cancellation process.
Don’t charge early termination fees or implement any other restrictions to the payment cancellation policy that might deter consumers from contacting the merchant.
5. Advertise Refund Options
When the cardholder contacts the customer service department for a refund, what payment options will be available? Is the customer forced to exchange the item for something else? Will store credit be issued? Will cash be awarded for debit card transactions? Will credit be issued to the account?
Is a receipt required? What happens if the customer only has a gift receipt?
Again, the least restrictive option is the best chargeback prevention strategy. The more lenient a merchant can be, the lower the risk of friendly fraud.
Regardless of the applicable payment option, the policy needs to be shared before the transaction is processed.
6. Skip the Legalese
A well-defined return policy is essential; it is especially helpful when it comes time to dispute chargebacks. However, complicated legal jargon can be confusing. And confused customers are likely to resort to the easy option of a chargeback.
Strike a balance between detailed and easy-to-understand. One way to make sure customers know what they are getting into is to include a succinct, step-by-step summary of the return policy.
Simplify the regulations that relate to:
- The return deadline: How long can the customer wait to return an item?
- The refund options: Will the customer need to make a product exchange, receive store credit, or collect cash?
- The extra fees: Who will pay the return shipping?
7. Publicize the Policy
Many merchants fear that a prominently displayed return policy incentivizes customers to seek a refund. In reality, the transparency builds trust which helps reduce refunds—and chargebacks.
The return policy should be easy to find. Display a link on every page of the website. Include a link in the product descriptions and in the checkout process. Ask customers to “accept” the policies before processing the transaction.
Be sure to refresh customers’ memories after the sale too. Include the return policy in the order confirmation email and on the receipt.
8. Cover the Cost of Shipping
Who will pay the return shipping, the customer or the merchant? While it might seem financially sensible to charge the customer, removing all barriers in the refund process means merchants improve the odds of returns instead of chargebacks.
If the customer is responsible for the shipping costs, make sure that policy is clear from the beginning.
9. Change Return Deadlines
Merchants must carefully weigh the pros and cons of extended return timelines. The more time the cardholder has to make a return, the fewer chargebacks the merchant will receive. However, delayed returns can cause restocking issues for the merchant.
Merchants who have shortened timelines for general situations might consider exceptions in cases of damaged or malfunctioning merchandise. Timelines might also need to be extended during the holidays.
Regardless of the return timeline, merchants need to clearly communicate deadlines to the customer before the purchase is made.
10. Educate Staff
Make sure all staff members, from the sales team to the customer service department, understand the return policy. Don’t let anyone make promises the company can’t keep. Alternately, don’t let anyone unnecessarily turn customers away.
Get Professional Help
If you’d like additional assistance crafting a chargeback-reducing return policy, let us know. One of the many services we provide is a 106-point inspection of merchants’ policies and business practices. We’ll help you identify chargeback triggers, including a faulty return policy, to reduce risk and prevent revenue loss.
Contact us today!