Having set up your online business, you are now making online sales and are pleased with your results so far. It is not until an unhappy customer sends you an email demanding you refund them in full that you begin to panic. Firstly, there is no reason to panic, as this is a very normal request that all businesses receive from time to time. When in doubt about when, how, and who to give a refund, contact a small business solicitor for advice on how to proceed. A small business solicitor will go through the various legal considerations and explain when it is optional and when it is mandatory to do so.

A practical example

Let us say that you sell software to a customer through an online platform. The customer downloads the program and now wants to be refunded in full. You are worried that you will not be able to retrieve the product, as the customer has already installed it into his or her laptop, and you’re equally concerned that the customer will still be able to utilise the software, even after you give a refund.

What are your options?

There are many legal considerations in this scenario, and a small business solicitor should be consulted whenever there is any doubt.

Australian Consumer Law Requirements

Your small business solicitor should inform you of your responsibilities as a business owner to your customers. Under the Australian Consumer Law (“ACL”) there are many duties owed to consumers, namely the ‘Consumer Guarantees’. These guarantees cover issues relating to refunds, returns, repairs and warranties. In terms of selling goods, you should be able to guarantee to your customers that:

  • The quality is acceptable;
  • There is no discrepancy between the goods advertised (the description/appearance on the site) and the goods received;
  • The goods do what they say they do, i.e. they satisfy the purpose for which they are advertised;
  • No available warranties will be denied; and
  • For a ‘reasonable time’, spare parts will be available when necessary.

First step: Ask for a reason

The most appropriate first step to take when a customer insists on a refund is to ask him or her to give you a reason for wanting the product/service refunded. Where possible, have them provide you with this in writing. This will not only provide your business with invaluable feedback, but will explain to you the customer’s interpretation of your refund policy. At this stage, there is no need to contact your small business solicitor.

What is your policy on refunds?

It is worthwhile having a small business solicitor assist with drafting a refunds/returns policy. The small business solicitor should make sure your policy is easily accessible to your clients and clearly defined. In some cases, certain goods are unhygienic to return, such as underwear or perishables. In these cases, have your small business solicitor clearly explain in the policy that these items are non-refundable in certain circumstances. Make sure that customers can find and read the policy at all stages of the transaction.

Your policy should be based on the ACL and should acknowledge the various consumer guarantees. For example, you have to give a refund if the goods are in a faulty condition. On the flipside, you are not required to refund certain items if the basis for the request for a refund is that the customers had a change of mind.

Commercial Considerations

In certain situations, it might be better to simply give the customer a refund instead or battling them till the bitter end. Don’t waste too much time trying to figure out an alternative solution to providing a refund if it means you will use up lots of your valuable time.

Another consideration is your business’ reputation. It is more practical and better for client relations to have an efficient refund policy that gives clients the apology they are looking for. If you leave them with a bitter taste in their mouths, they may give you a negative review, which can have a negative impact on your business prospects in the future. There is no point in getting a solicitor involved over a single product, unless it is extremely valuable and it means you will be substantially out of pocket.

Conclusion

Your small business solicitor will need to ensure that you have clear and effective terms in place, and that they are easily discoverable by any prospective customers at any stage of the transaction. A fair and reasonable refund policy will allow you to grow your business without getting bogged down with saving pennies. Some things are not worth fighting.

If you are not sure whether giving a refund is the better course of action, or whether the customer is taking advantage of your refund policy, contact your small business solicitor. If you do not have a small business solicitor already, contact LegalVision on 1300 544 755 and ask to speak to one of our team of experienced business law solicitors.

Lachlan McKnight

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