Payments

4 Reasons Your Small Business Needs a Return Policy

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Topics: Payments

By SpotOn

Having to accept returns from customers can be a hassle, but it’s an unavoidable reality of running a small business. Some business owners try to ignore returns and only deal with them when an irritated customer makes a fuss. This is a huge mistake that can not only tarnish your business’s reputation but also lead to getting charged higher credit card processing rates. To avoid those disastrous outcomes, it’s important to come up with a clear return policy, communicate the policy to customers, and enforce it consistently and fairly. Still not convinced? Here are four reasons why you absolutely need a clear return policy.

1. Customers Expect a Fair Return Policy

The old adage goes that “the customer is always right,” and while we all know that’s not always true, keeping customers happy is certainly important, particularly in this day and age when angry customers flock to review sites to voice their dissatisfaction. By creating a fair return policy and communicating it to customers when they make purchases, you can avoid most conflicts that would otherwise arise when a customer is unhappy with a purchase.

2. It’s Required by Law

Accepting returns goes beyond just keeping customers happy. Federal law requires that you accept returns of any goods that are defective or in some way break a sales contract. You also must offer a 3-day “cooling-off” period for remorseful consumers to return items in certain situations.

Not complying to laws opens you up to potential litigation, not to mention a damage to your reputation if a customer files a complaint to the Better Business Bureau or elsewhere.

In addition to federal laws, some individual states, such as California and Massachusetts, have more stringent rules. In most of these cases, though, you’re given a lot more leeway with your return policy if you simply communicate it to customers with a sign visible at the checkout area or included with the receipt customers receive.

The bottom line is, make sure you know the rules in your state, and comply with them.

3. It Can Prevent You From Losing Money

It might seem counterintuitive that having a return policy could save you money, but if you do it right, it can do exactly that. To get started, you’ll want to assess how many returns you’ve gotten in the past to determine the cost associated with the accepting returns. You’ll also want to assess whether return items are sellable again, whether you can get reimbursed by the manufacturer or supplier, or if you get stuck eating the costs. Lastly, you’ll want to identify any products that are frequently returned and determine whether it makes sense to keep stocking those products.

Factors to Consider for Your Return Policy

From there, you can decide whether you want to minimize your policy to only accept returns of defective items, as required by law, or if it makes sense for you to offer a return policy that’s more consumer friendly. For example, if you operate an upscale business, you’ll probably want a more generous policy to increase customer loyalty. It’s very much a balancing game. Get too stingy with your policy and you’ll annoy customers. Get too generous with your policy and some customers might try to take advantage of the situation, as L.L. Bean recently discovered.

4. You Want to Avoid Chargebacks

A chargeback is when a customer contacts their bank to reverse the charges on their credit or debit card. This most often happens when businesses refuse to let customers return products and a customer feels cheated or ripped-off.

It’s bad news when this happens, not only because you’re out of both the product and the payment, but also because too many chargebacks can cause banks to rate you as a high-risk merchant, which will increase the credit card processing rates you have to pay.

Once again, implementing a fair return policy and communicating it to your customers goes a long way toward preventing situations like this from ever escalating to the point where customers initiate chargebacks with their banks.


Do you know how much you’re paying to accept credit card transactions? SpotOn frequently sees that small businesses are overpaying thanks to chargebacks, improperly keying in transactions, and getting hit with hidden fees from payment processors. We’re here to help. Get a free demo today to see how we can help you save money.

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