Return Policy for Small Businesses: Tips and Examples [2022]

It’s important to have a clear return policy that works both for your customers and for you. Learn which key points you need to include and what to avoid.

Working to create a return policy for a small business can seem daunting and costly at first. In my experience, though, not having a return policy can actually have a negative impact on your business as customers may perceive your business as untrustworthy. 

While it can require a bit of upfront work, setting up a clear return policy and system for dealing with these situations can take pressure off you and give you time to focus on other aspects of the business.  

When crafting your return policy, it’s important to get the details right, or else you may find yourself losing time and money. I’ll show you what you need to include in your return policy to gain your customers’ trust while protecting your business.

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What Is a Return Policy?

A return policy is a set of guidelines that a business makes to outline the exact terms and conditions around the return or exchange of products. Service providers also use them, but they generally have more subjective criteria. 

A return policy allows you to refer to the preset rules if a customer asks for a refund. This way, you can treat all requests the same, without exception. If you don’t have a clear policy, customers may try to argue with you, which can lead to headaches and other difficulties. 

There are generally no legal requirements on accepting returns, but in some locations, you are legally required to state your policy clearly in store and online, where customers can easily access it. In certain states (California for instance), if you don’t have an accessible policy, then customers have the automatic right to a refund up to 30 days after purchase. 

Why Does Your Business Need a Return Policy?

A return policy for a small online business allows you to stay organized and be transparent with your customers. Especially in ecommerce, it takes the uncertainty out of the shopping experience and builds your customers’ sense of confidence in you. 

It’s tempting for small business owners to implement a no-returns policy, as each return represents a loss in revenue. Additionally, you probably think highly of your product, and it can be hard not to take returns personally when customers aren’t happy.

However, a no-returns policy is not a smart business decision for most businesses. Many customers today will not buy from companies without some sort of return or exchange policy, especially when shopping online. 

Return policies are particularly important in industries like fashion, where customers want to know they can exchange or return items that don’t fit. If you have a fashion-related business and don’t offer returns or exchanges, people may be uncomfortable purchasing from you.  

Additionally, if there’s an issue with an order and a customer is seeking a refund, not having a clear process can alienate them from doing further business with you. It can also push them to negatively review your business, or steer other potential customers away. 

I recommend you set up a simple and straightforward policy and outline the limitations around it. This is crucial when running a small online business and can:

  • Help customers make a decision to purchase, as they may be more inclined to purchase from you knowing they have options if the product doesn’t meet their needs. 
  • Improve customer loyalty and satisfaction, as customers feel valued and respected when issues are handled quickly and easily.
  • Help you and your employees stay organized and on top of issues, as a detailed return process ensures nothing falls through the cracks. 
  • Prevent against return fraud, as a clear policy prevents people from returning products they bought elsewhere or with fabricated receipts.

To determine the best policy for your business, look at your competitors to see what they offer. If they offer better or more streamlined processes, you may lose out on potential business. 

What to Include in a Return Policy

Since there’s no obligatory standard return policy for small businesses, you’re responsible for creating a policy that works for you. Most consumers prefer simplicity, so it’s a good idea to keep it short and use clear language that is easy to understand. Leave no room for interpretation, as that may cause customers to try to skirt the policy. 

Return policies can vary between industries and stores, but here are a few specific things you should specify to make yours as clear as possible.

What Items Can Be Returned

It’s common to have limitations around what can or can’t be returned. You may decide not to offer returns or exchanges for sale or clearance products, as they can be considered “final sale.” You might not accept returns on food or perishables. 

You can also set limitations around the returned items’ condition. For example, a store may stipulate that undergarments or swim suits cannot be returned due to matters of hygiene, or that tech products must be in the original, unopened packaging. 

Exchange vs. Refund

In some cases, instead of offering refunds, you may offer to exchange a product for a similarly priced one. This is common for clothing, when a customer may simply need a different size or prefer a different color. 

You might offer a mix of refund-eligible and exchange-only items. In this case, it’s important to specify which product types fall under what category. 

Reasons for Returns

While some stores might only allow a product to be returned if it’s defective or if the business made an error, others may have a “no questions asked” approach to returns and refunds, as long as the products haven’t been used.

Offering a more liberal return policy can increase customer satisfaction, especially in industries where returns are common. However, it can also lead to a greater loss of profitability and increase your workload in sorting and processing refunds. 

Time Frame for Returns

Most return policies have a clear time frame. The typical time limit can be anything between 14 and 60 days after purchase, depending on the product type, whether it was bought online or in-person, and how long shipping can take. 

Some businesses offer longer return time frames around the holiday season, recognizing that many products will be given as gifts. This allows the recipient an extended time frame to exchange or return a gift if it’s not right for them.  

Type of Refund

Some businesses only give store credit if someone returns an item, while others will refund cash or issue a refund via the customer’s credit card or other payment methods. You could offer one of these options or even both. 

Giving store credit protects you from losing the sale, but it might be seen as frustrating in cases where the customer just wants their money back. 

An interesting tactic online retailer Cubbies uses is offering additional value when someone chooses store credit over a cash refund. If the original purchase amount was $50, they might offer store credit worth $55, to entice customers to choose that option. This can be a win-win, as the customer feels like they’re getting a deal and you are retaining their business. 

Documentation Needed

Most businesses require a receipt or other proof of purchase before they’ll give a customer a refund. Some stores may still let a customer exchange an item if they’ve lost the receipt, while others won’t even allow that. In addition, many brick-and-mortar stores require the original card used to make the purchase, for identification purposes. 

Ecommerce stores that accept payments online will typically have records of all their transactions, so proof of purchase may not be necessary. Some online businesses may still ask to see the customer’s receipt or email confirmation. 

The Return Process

Laying out the specific return process is especially important for online stores that don’t have physical locations for customers to bring the items they want to return. You should specify whether you or the customer pays for return shipping, any additional fees such as restocking fees, and the refund processing time frame. 

The process should also include the steps needed in order to properly return an item. This may include emailing customer support, accessing a pre-paid label for shipping (if your business pays the return shipping costs), and the address of where to send the item for return. 

Free Return Policy Template 

We’ve created a sample return policy for small businesses you can use as a template. Simply fill in your own details and customize as needed. 

[Business Name] Return Policy

We work to ensure our customers are satisfied with their purchases. If you are unhappy with your purchase [for any reason], we’ll be happy to return or exchange the product within [X days of purchase] for [a full refund, an exchange, or store credit.]

To make a return:

  • Items must be [unopened/unused/unworn]
  • Items must still be in their original packaging with all tags attached
  • Items must not be damaged or show signs of wear
  • You must have a receipt or other proof of purchase

Please note that we cannot accept returns or exchanges of clearance or sale items. We also cannot accept returns of:

  • [Other specific products that cannot be returned and possible reason]

To return a product, send the product back to [address] via [mail or shipping company], along with proof of purchase and your details. We will send a confirmation email once we have received your returned item(s). Customers are responsible for all shipping costs, along with a restocking fee of [$X]. 

For customer support or additional questions, you can contact us at [contact details]. 

Make sure that your policy is on your website and/or attached to receipts and order confirmations to make it easy for customers to find. 

How Can You Issue Refunds? 

Once you have a return policy in place, you’ll want to complete refunds quickly and easily. Quick refunds mean satisfied customers who may come back and shop with you again. The maximum processing time for a refund should be about a week, but sooner is always better! 

Pay.com makes it simple to keep track of all your transactions and issue partial and full refunds when needed. The user-friendly Pay Dashboard allows you to issue a refund through the customer’s chosen payment method

The Bottom Line: Create the Right Return Policy for Your Business 

Whether you’re looking to create a return policy for a new small business or revamp an existing one, it’s important to make sure it's straightforward and transparent. While the specifics of the policy can vary according to the needs of your business, it should cover all the basics. 

Finding a balance between customer satisfaction and profitability can be a challenge when creating a fair return policy for small businesses. A no-questions-asked refund policy may lead to loss of revenue, but increase customer loyalty. A no-returns policy can have the opposite effect, causing customers to never want to buy from you again. 

The best return policy for your small business is one that falls somewhere in the middle. It recognizes that return and exchange limitations need to exist, while working with customers to ensure they’re happy with their purchases. 

You can do this by prioritizing exchanges over returns, offering additional incentives to choose store credit, and ensuring the returns are processed quickly.

Whatever you decide on, make sure your return policy is visible on your website. You could link to it from the footer, FAQ page, product page, and order confirmation emails.

If you’re looking for an easy way to accept payments online (and process inevitable refunds), Pay.com can help. You can accept a variety of payment methods, from credit cards to ACH transfers, and customize your checkout page to match the rest of your branding. If you need to issue a refund, you can do it in a couple of clicks from your Pay Dashboard.. 

FAQs

Can a small business have a no-refund policy?

A small business can choose to have a no-refunds policy, except in the case of faulty products or marketing that may have misled the consumer. In those instances, you may be required by law to provide a refund, or at the very least, a replacement.

How long does a business have to send a customer a refund?

There is no legal requirement regarding the time frame to process a refund, but the faster it can happen, the more satisfied a customer will be. Ideally, a business should aim to process a refund within 7 working days at the most.

Do private sellers have to accept returns?

Private sellers do not have to accept returns, unless the product is faulty or otherwise defective. The specific protections around faulty products may vary depending on states. However, accepting returns can have a positive impact on your business.

How can I issue refunds online?

Issuing partial or full refunds to your customers has never been easier than with Pay.com. You can quickly find the customer’s order in your Pay Dashboard and send a refund through the original payment method used to make the purchase. 

Meet the author

Ashley Hague

Ashley Hague is a B2B writer based in New Zealand. Specializing in fintech, SaaS, and sustainability in business, she helps businesses achieve their goals. When not working, she can be found rock climbing or delving into a historical biography.

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