What to Consider When Creating a Returns and Exchange Policy

What to Consider When Creating a Returns and Exchange Policy
Everything you need to know to create a return and exchange policy for your retail business.
by Deborah Findling, Maya Rollings Mar 01, 2023 — 5 min read
What to Consider When Creating a Returns and Exchange Policy

Even though returns are a normal and expected part of running a retail business, we regularly hear from Australian businesses using Square that high return rates are uncommon. In fact, for Australian sellers, the overall refund rate for all purchases is extremely low by industry and global standards.

Businesses offering solid quality, reliability and customer service are more likely to avoid an unhealthy return rate – this applies to both online and in-store selling. Even so, every retailer needs to understand their obligations and options when it comes to all things returns, refunds and exchanges. In this article we will outline the essentials to help you craft a policy that works for you and your customers.

While no retailer gets excited about a customer return, viewing it as an opportunity instead of a liability can help improve your business. Peak shopping periods, such as the Black Friday and early Christmas shopping season can deliver a reliable boost to turnover and return rates will vary by category. For example, in online fashion and apparel there’s a greater likelihood of returns expected as items may not fit or look exactly as expected.

Beyond refunds: What are the options?

When a customer decides to return a purchased item, it does not automatically call for a refund of the full purchase amount. Make sure to consult the Australian Consumer Law and regulations regarding refund requirements as a first step to understanding your customer’s consumer rights and where a refund must be given.

Keep in mind that there are circumstances where a refund is not required, and where your customer could instead benefit from the gift of a Square Gift Card credit, for example. This option allows you to provide refunds with no additional processing fees. Exchanges and store credits give you the certainty of not losing a sale, and mean that your customer stays engaged with your business until they are satisfied.

Consider all the costs associated with returns and refunds

Retailers should take a holistic view of the costs and benefits associated with returns to their business – both financial and environmental.

Financially, one small but present cost to keep in mind is the transaction processing fee. As sellers have recently been notified, we are updating our refund policy so that processing fees will no longer be returned when sellers issue a full or partial refund. Square has always incurred processing fees from our network and payments partners on all transactions at the time of sale.

This return policy update more accurately reflects that Square does not recoup these costs when refunds are made, and matches current industry standards. For existing sellers, these changes go into effect in Australia on April 4, 2023. For new sellers signing up with Square on or after March 1, 2023, our new policy takes immediate effect.

Look for opportunities to enhance the customer experience

Unlike online sales that can be shipped back to your store or fulfilment centre, in-store returns offer a unique opportunity to engage your customers. In-store returns provide an opportunity for your team to meet and convert an online buyer, especially if they received the item as a gift and are unfamiliar with your store. The key is to make the process customer-centric, with flexible policies that help build relationships and customer loyalty.

How to write a return policy

To improve customer confidence, make it easy to return your goods. A comprehensive and transparent policy establishes rules and timelines for returning or exchanging unwanted products.

It’s important to consult the Australian Consumer Law and regulations around refunds before drafting your policy.

While your return policy will reflect the type of products you sell, consider including the following information:

1. Items accepted for returns. Generally, a store does not have to give a refund or replacement if a customer simply changes their mind about a product. Under the Australian Consumer Law, the customer is only entitled to a refund or replacement for a major problem with a product covered by consumer guarantees.

Understand what items can be returned, what items can be exchanged, and the condition required. For example, you may decide to accept returns of items in original condition, such as in the sealed box or with tags attached. You may also decide to require a receipt for a return and an exchange without a receipt. You can also identify items considered “final sale,” such as something custom-made, personalised, or heavily discounted due to minor faults.

2. The type of refund. Decide how you will compensate the customer for the return and the documentation needed, such as a receipt or an order number. For example, you can provide a full refund to the original form of payment; you can exchange the return for the same item, such as a different size or colour; or you can give the customer store credit. The type of refund you provide will often be connected to your timeline or the documentation the customer needs to provide.

3. The process for completing the return. Your business operations will impact your return policy, including whether you’re brick-and-mortar only, online-only or a combination of both. You may accept items in your store or ship them to your eCommerce warehouse. The return policy should state who pays for shipping if returns are accepted by shipping. You can also encourage exchanges by paying for return shipping when the customer swaps out the product instead of asking for a refund. Some retailers choose to include return labels in their packaging to make returns quicker and easier for customers.

How to implement a return policy

Once you’ve created a concise and comprehensive return policy, make sure it’s implemented consistently across your company. Inform your customers about your policy, and make it clear.

You should post it in your store, such as a sign behind your checkout station or laminated to your counter. Add a Returns page to your website and include the process in your FAQ section. Include your policy on your online ordering pages for customers to view before checking out. Print your policy at the bottom of your receipt and include it in your email order confirmation. By publishing your policy in various areas, you reduce the risk of confusion for your customers and avoid disappointment later that can negatively impact the customer experience.

Your return policy should be considered part of your overall customer service training. Make sure your team members understand how to accept a return. Some retailers only allow managers to process returns, which can help reduce return fraud. However, during busy seasons you may want to ensure that having this manager-only policy doesn’t slow down business, inconveniencing your shoppers and leaving a negative impression.

Choose a POS system that allows you to process returns and exchanges efficiently. You want to choose software that adds the product back to your inventory if the item is salable. If the item is damaged, however, you want the option to skip the restocking process so you don’t inadvertently sell an item online that isn’t available for delivery.

Common return questions and issues

Consider collecting information from the customer, asking for the reason for the return. Common questions you might ask are:

Capturing this information can provide some insight into your product selection and operations, as well as how you market your products online and in-store. Damaged or incorrect items could indicate problems in your warehouse, either in receiving inventory from your vendors or in your shipping processes. If you see a lot of items returned for improper fit, that could indicate a need for better sizing charts or photos. Review your returns data when you order inventory in the future to ensure that you’re offering products your customers like.

Returns and exchanges can be viewed as a sales opportunity, especially at times when the customer may be new to your store. The easier you make it, the greater the chance you encourage customers to return to your store to make more purchases in the future.

This article is for informational purposes only and does not constitute professional advice. For specific advice applicable to your business, please contact a professional.

Deborah Findling
Deborah Findling is an Executive Managing Editor at Square. She also writes about investment, finance, accounting and other existing and emerging payment methods and technologies.
Maya Rollings
Maya Rollings is an editor at Square where she writes about all things customer experience, from building a solid customer base to leveraging tools and technology that meets them where they are in their journey.


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