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When do you legally have to refund a product?

Friday, 28 February 2014 | By Vanessa Emilio

You have started your new business and set up a website selling your products. All is going well until you receive your first request for refund.


What do you have to take into account when you decide what and when to refund?


Take this case example:


You’re in the business of selling electronic software programs. The customer has purchased your software, it is delivered electronically (i.e. by email, shopping cart link, etc), has downloaded it and claims they now want a refund. You may think that since they already have the software, you cannot get it back and they can still use it so you don’t want to give them a refund.


What do you do? Can you ignore them and walk away?


You have both legal and commercial issues you should consider when deciding how, who and when to issue a refund.


Legal responsibilities: You may not have a choice


All businesses have legal responsibilities to consumers which you need to be aware of. Your obligations under Australian Consumer Law are very specific when it relates to refunds, returns, guarantees and warranties.

In relation to the sale of goods, these include guarantees that:


  • the goods are of acceptable quality;
  • the goods are fit for any disclosed/advertised purpose;
  • the goods will match any description under which they are sold;
  • the goods will have spare parts available for a reasonable time; and
  • all express warranties offered will be honoured.


So what should you do?


Before you do anything, find out (preferably in writing) what the reason is for the refund request. This can be valuable information which you can use to improve your products or business as well as clarify the customer’s understanding of your refund policy.


Check your refund policy


1. Ensure your refund and return policy is very easy to access and very clear to visitors and customers. In the case of some goods, they may not be able to be easily returned for hygienic reasons (i.e. lingerie, swimwear, perishable products). If this is the case and you do not or are not able to accept returned items, you must make this very clear in your refund policy. The policy must be easily accessible to consumers before they make a purchase.


2. Your refund policy must comply with the Australian Consumer Law. You cannot, for example, state that you do not permit refunds at all and not honour a refund if the goods are faulty. You can, however, state that you will not offer a refund or return on some goods in the event customers change their mind. You need to ensure this is clear in your refund policy and that it’s easy to find on your site.


Commercial Issues: Consider the costs


1. Cut your losses: Sometimes it is just best to cut your losses, not spend the time or effort, and just issue the refund and call it a day! You can end up spending more time trying to troubleshoot, trying to repair an issue or listening to a complaint. Just by smiling, apologising and refunding, you can move on to what your time is better spent on – growing your business.


2. Consider your reputation: You also need to consider your business reputation (and loss of sleep) if you argue or try to ‘save a sale’. With a quick and efficient refund policy that apologises to the customer (even if it’s their fault and they are wrong!), you may find they come back again to purchase or even recommend your business to their friends.


The key is to make your business easy, work efficiently and have happy customers. Having clear terms and conditions on your site to cover the Australian Consumer Law requirements, including your refund policy, helps you avoid getting caught up, allows you to keep your focus and get on with growing your business.


Have you had problems with refunds and difficult customers?