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Writing an eCommerce Return Policy

Return Policy

Writing an eCommerce Return Policy That Decreases Chargebacks

Return policies, believe it or not, have the potential to drive up a merchant's chargeback rate. If, for example, a return policy makes it easier for cardholders to file a chargeback than secure a direct refund, a higher percentage of cardholders will go the chargeback route. So how do merchants craft a business return policy that doesn't encourage chargebacks?

Policy Requirements

Multiple factors impact how a return policy is written. For starters, each state and card network has its own specific rules concerning how a business discloses its return and cancellation requirements. State laws usually call for only the bare minimum; merchants are advised to reference their local laws, but most states just require a brick-and-mortar merchant to prominently post these policies somewhere near the cash registers.

The card associations, on the other hand, have separate, stricter mandates. For merchants with a physical store, return policies must be legibly printed on the sales receipt (below the signature line) in a readable font. The information is printed close to the signature line on the assumption that the customer will more easily see and read the policy before signing.

For eCommerce businesses, cancellation and return policies must be clearly stated on the website. Sites must feature a link to their terms and conditions which is easily accessed during the checkout process. Customers must tick a box indicating they’ve read and agree to the conditions before their purchase can be completed.

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How the Return Policy Influences Chargebacks

Beyond the outside requirements, merchants should create return policies that serve the best interests of both the customer and the business … and that includes discouraging fraudulent chargebacks.

To understand how return regulations can bolster chargebacks, it's important to note that friendly fraud—not criminal fraud—is the leading cause of chargebacks. Most consumers who file chargebacks will do so out of convenience: it's easier to contact the bank than deal with the merchant’s official return process. That means that the harder or more complicated a merchant's return procedure is, the more likely the customer will skip it altogether.

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 follow 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.

Generally speaking, there are two faulty business practices that make it seem like the bank is the easiest, no-hassle solution for a refund:

  1. The merchant’s restrictive return policy
  2. The merchant’s subpar customer service

Customer service is a critical component to long-term business success, so any issues in this arena should be addressed at once. After the merchant has identified and implemented the best ways to improve customer service, it's time to take a look at the return policy.

Let us help you craft a return policy that discourages chargebacks.

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10 Tips for Writing a Chargeback-Proof Return Policy

No merchant likes to deal with returns. Making the return process more complex won't result in fewer customers wanting returns, though; more likely, it will simply make them try to bypass the merchant's system with a chargeback.

So how can a business' return and cancellation policy be written so as to reduce the risk of chargebacks and return fraud? Here are 10 suggestions to consider:

1. Prevent Returns from Happening

Before merchants start editing their eCommerce return policy, it's good to take a step back and re-evaluate their entire sales process from start to finish. Doing so might show ways to prevent the return from happening in the first place.

Review the product and service descriptions for accuracy and detail. 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're buying or feel they've been misled, the risk of returned merchandise rises dramatically.

2. Implement a More Flexible Policy

The more flexible the return policy, the lower the risk of chargebacks. Consumers who don’t qualify for a traditional refund because of restrictive policies are more prone to file illegitimate chargebacks with unwarranted reason codes.

Sometimes, of course, it isn’t practical to accept any and all returned merchandise. Overall, however, implementing a policy that can adapt to different circumstances can go a long way toward encouraging returns instead of chargebacks.

3. Clearly Define “All Sales Final” Situations

In some situations—dealing with intimate apparel or seasonal items, for example—merchants may not be able to offer any wiggle room in the refund policy and must prohibit all returns. In these cases, it is imperative to make sure the consumer clearly understands that the sale is final.

Inform the shopper multiple times in multiple locations. Try to couch the policy in positive (or at least neutral) terms, but use the same language across the board: to avoid trouble, this policy needs to be crystal clear before the sale is finalized.

4. Make Cancellations “No Strings Attached”

Cancelling an order or recurring payment can be challenging for the consumer. There might be feelings of embarrassment, remorse, or—if the customer feels duped—even anger.

These feelings are more likely to lead to chargebacks, but disputing a “cancelled recurring transaction” chargeback—even a fraudulent one—can be extremely difficult for the merchant. In many scenarios, the dispute comes down to the customer’s word against the merchant’s. As issuers tend to side with customers, merchants are usually better off focusing on the prevention of these chargebacks.

One way to do that is to offer a clear, simple, easily understood cancellation process. If possible, early termination fees or other restrictions to payment cancellation should be eliminated, as these things might deter consumers from contacting the merchant directly.

5. Explain Refund Options

When the cardholder contacts your 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 directly to the cardholder's account?

What affects these various options? Is a receipt required? What happens if the customer only has a gift receipt? Again, the least restrictive policy is the best chargeback prevention strategy. The more options a merchant can present, the more comfortable the customer will be.

As before, regardless of which policy the merchant puts in place, it needs to be clearly and obviously shared in multiple locations where it can be seen before the transaction is processed. The available options (and their requirements) should be explained in the simplest possible language.

6. Skip the Jargon

Simple language works best for all policies. While a well-defined eCommerce return policy is essential, even a minimum of legal jargon can be confusing, and confused customers are far more likely to resort to the easy option of a chargeback.

Strike a balance between providing enough detail and being easy-to-understand. In particular, simplify the regulations that relate to:

  1. The return deadline:How long can a customer wait to return an item?
  2. The refund options:Will the customer need to make a product exchange or receive store credit? Will the refund go back on a credit card, or can the cardholder collect cash?
  3. Any extra fees:Who will pay the return shipping? Is there a restocking charge?

7. Publicize the Policy

Some merchants fear that a prominently promoted return policy may incentivize customers to seek a refund. In reality, the transparency inherent in an upfront policy builds trust, which helps reduce refunds and chargebacks.

Once the return policy is simplified and standardized, merchants should not be afraid to call attention to it. This especially applies to e-merchants: 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.

Merchants should be sure to refresh customers’ memories after the sale too. Include the return policy in the order confirmation email, on the receipt, and even on the box if possible.

8. Cover the Cost of Shipping

It might seem financially sensible to charge the customer for return shipping, but in the long run, removing all barriers in the refund process builds trust and makes consumers more willing to buy from you. It can also dramatically improve the odds of getting a return instead of chargeback.

This will involve extra expenses on the part of the merchant, but the cost pales in comparison to chargeback fees, elevated chargeback rates, and a jeopardized merchant account.

Nevertheless, if the customer is to be responsible for return shipping or restocking costs, merchants must clearly and comprehensively state this and be sure the policy is understood from the beginning, before the sale ever happens.

9. Change Return Deadlines

There are pros and con associated with extended return timelines, and merchants should carefully examine both sides before finalizing a policy. On the one hand, the more time a cardholder has to make a return, the less likely the return will result in a chargeback. At the same time, however, delayed returns can cause restocking issues for the merchant.

One option merchants may consider is varying the allowable return time under certain conditions, such as cases of damaged or malfunctioning merchandise, or during the holidays. And of course, the most consistent rule in this list still applies: all information must be clearly communicated to customers before the purchase is made.

10. Educate Staff

It is easy to assume that all employees completely comprehend all aspects of a return policy…but at least a handful probably don't.

Be sure all staff members, from the sales team to the customer service department, understand the rules of the return policy and why those rules are in place. This can keep employees from making promises the company can’t (or doesn't want to) keep; it should also prevent workers from unnecessarily turning customers away.

REVIEW: How to Write a eCommerce Return Policy that Will Reduce Chargebacks
  1. Prevent Returns from Happening
  2. Implement a More Flexible Policy
  3. Clearly Define “All Sales Final” Situations
  4. Make Cancellations “No Strings Attached”
  5. Explain Refund Options
  6. Skip the Jargon
  7. Publicize the Policy
  8. Cover the Cost of Shipping
  9. Change Return Deadlines
  10. Educate Staff

It is easy to assume that all employees completely comprehend all aspects of a return policy…but at least a handful probably don't.

Be sure all staff members, from the sales team to the customer service department, understand the rules of the return policy and why those rules are in place. This can keep employees from making promises the company can’t (or doesn't want to) keep; it should also prevent workers from unnecessarily turning customers away.

Look to the Professionals for Help

While crafting a chargeback-reducing return policy is fairly straight-forward, it's still not an everyday occurrence, meaning merchants can easily get overwhelmed. If you’d like additional assistance establishing your policy, just give us a call.

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 potential issues with your eCommerce return policy—and show you other ways to reduce risk and prevent revenue loss.


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