Reading time: 5 minutes

Drafting a clear refund policy can help you manage your customers at what can be a difficult stage of the buyer journey. With this in mind, it’s important to consider a number of factors to ensure that you draft a refund policy that fits your business’ needs and helps you maintain a good relationship with your customers. 

Before drafting a refund policy for your e-commerce store, you should ask:  

  • What refund policies are standard for your industry?
  • Do you need to place any restrictions on returns?
  • Are you restricting any of the rights consumers automatically receive under the Australian Consumer Law (ACL)? 

Below, we revisit consumer rights under the ACL and how you can minimise your business’ risk when drafting your e-commerce store’s refunds policy.

The Australian Consumer Law

The first point to remember when drafting a refund policy is that consumers have certain rights under the ACL which apply regardless of what a contract says. You will breach the ACL if you don’t allow consumers to exercise their rights under the ACL, for example, their right to a refund in certain situations. 

Who is a Consumer Under the ACL?

The ACL automatically applies for the purchases of goods or services worth under $40,000, or goods or services worth over $40,000 where the good is normally used for personal or household use. A person who purchases goods or services and satisfies these conditions will be defined as a ‘consumer’ and entitled to rights under the ACL.  

When is a Consumer Entitled to a Refund for Minor or Major Faults With Products?

A business is obligated to fix a product if it has a minor fault. If the product has a major fault, a business must provide the consumer with a refund or replacement. A major fault is one that cannot be fixed and had the consumer known, they would not have purchased the product. 

Major Faults and Services

A service has a major problem when: 

  • a consumer would not have ordered the service had they known about the fault; or 
  • the service is substantially unfit for purpose; or 
  • the service does not meet the specific purpose the consumer requested.

If a consumer experiences a major problem with a service, they are entitled to either: 

  • cancel the contract and obtain a refund for any part of the service not used, or 
  • keep the contract on foot but receive compensation.

Many businesses provide returns and refunds for a change of mind because they place a high value on ensuring the customer has a great experience. However, they are not legally required to do so. 

Minimising Your Business Risk

A business should also seek to minimise the risk associated with providing a refund.

Refunds are costly – you lose a sale, and it’s time-consuming to organise products to be returned.

Ultimately, a good return policy should balance your customer’s interests in having a great experience against the cost to the business of providing a refund.

Time Limits

Many businesses place time limits on requesting or making a return for change of mind. For example, customers of online retailer The Iconic have 30 days to obtain a refund or exchange for change of mind. If you fail to specify a time-limit, a customer may return six months later, and you will have to refund money that you had already counted as profit.

Paying for Return Postage

Many businesses offer a free return postage service. In most instances, a free return postage service is excellent customer service. A business, however, is not required to pay for return postage if a customer simply changes their mind.

If a product is faulty, consumers are usually responsible for returning the product but can recover reasonable postage or transportation costs from the seller if the business confirms the item had a problem. If a product is too large to return (e.g. a bed or fridge), the business must pay the shipping costs or collect the product within a reasonable time of being notified of the problem.

Requiring Original Packaging

If you intend to try and sell the product again (e.g. it’s not faulty) or packaging tells you whether someone has tampered with the product, you should consider requiring the customer return the product in its original packaging.

What Happens if an Item is Lost in Transit?

When posting an item to a consumer, businesses are generally responsible for the product until it reaches the consumer. If an item is lost in transit, the business (not the customer) must contact the delivery company and make a claim. If a customer is posting a product for a return, then the customer is responsible for the product until it reaches your warehouse.

Industry Standard

After considering what restrictions you will place on making a return, research the refund policies of other businesses operating in your industry. Check whether other businesses offer returns for change of mind and whether they stipulate a time limit on making a return. You can then confirm that your refund policy is consistent with industry standards. 

Key Takeaways

You should consider a variety of factors when drafting a refund policy that suits your business’ needs. It’s not enough to use a template document, as it may miss key clauses that are important to protect your business.

Businesses commonly include time limits or ‘no refunds for change of mind’ clauses to limit the situations in which customers will return goods. Depending on your industry, however, you may wish to offer a more lenient policy.

By checking the return policies of other businesses in the industry, you can ‘sense check’ your document and make sure you haven’t missed an important clause. Finally, you should be aware that consumers enjoy rights under the Australian Consumer Law, irrespective of what you place in your refund policy.  

If you have any questions or need assistance drafting your e-commerce store’s refund policy, get in touch with our online business lawyers on 1300 544 755. 

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Chloe Sevil
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards