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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. 


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