Two women stand on opposite sides of a counter in a large, well-lit store. The woman on the left is tall and has straight brown hair. She is accepting a credit card from the woman on the right, who is shorter and has shoulder-length curly hair. A folded piece of black-and-white striped cloth, possibly a small throw blanket, sits on the counter between them. In the background, out of focus, are mannequins standing in the store window, a glass case containing merchandise, and a blonde woman examining items on a shelf.
To cut down on return fraud, your business can implement a policy requiring customers to provide a receipt or an ID along with their returned purchase. — Getty Images/FatCamera

Refunds and exchanges can cost your business money, time, and resources. Yet an inconsistent or unfriendly refund and return policy can cause cart abandonment and negative customer sentiment. Solve these problems with easy-to-understand guidelines. Your guidelines should clearly state your refund conditions, including time limits, eligible products, and reimbursement fees.

Business-to-business (B2B) and business-to-consumer (B2C) operations should post notices at the point of sale (POS), on contracts, and on their website. You can write rules, follow a return policy template, or use a refund policy generator tool. Here's how to get started.

Review federal and state laws

The Federal Trade Commission (FTC) has a "cooling off rule" for purchase or rental agreements outside your business, like a customer's home. This regulation requires door-to-door salespersons, including coaches offering in-home instruction or service installers, to provide a "notice of right to cancel" or "notice of cancellation." However, "refunds tend to be a state law contract issue," according to FindLaw. Policies differ among states, so check your state regulations before writing a refund and return policy.

Laws may require you to:

  • Notify customers about restocking fees.
  • Prominently display a no-refund policy.
  • Follow state guidelines if you don't have a policy.

[Read more: How to Set B2C Client Payment Terms]

Understand the common types of return fraud

The National Retail Federation (NRF) estimated that more than 10% of in-store and online returns are fraudulent. Fraudsters return used items, forge receipts, try to get refunds for stolen or shoplifted goods, and falsely claim they didn't receive a delivery. To reduce fraudulent returns, SecurityInfoWatch.com recommended that businesses "replace cash refunds with store credit or item exchanges," require an ID and a receipt, or "only refund items to the original card on which the purchase was made."

Define refund and return time limits

According to TermsFeed, state laws "impose minimums that range from 10 days up to 60 days." You can pick any time frame for exchanges and refunds if your state doesn't specify guidelines. For instance, you may offer a 30-day money-back guarantee for business software but no refunds for technical support calls. Likewise, companies might have a three-day return policy for perishable goods but allow 20 days for other merchandise.

If your policy is customer-friendly or stands out from competitors, you can use it as a selling point.

List eligible products and services

Explain which items can be returned and what condition they must be in. Some stores won't accept goods with missing tags, original packaging, or apparent signs of wear. Others ban returns of certain merchandise, such as perishable foods or discounted items. If your policy varies among services and goods, make this clear in product listings and your terms and conditions.

[Read more: Ready for Returns? Best Practices for Handling Customer Refunds]

State your identification or receipt requirements

You can require customers to show a receipt, ID, or both, and doing so can help prevent fraud. If your business policies need flexibility, consider offering store credit or an alternate product or service of equal value to consumers who don't have an ID or receipt. Remember to clarify any policy differences between goods and services.

Mention any fees associated with refunding or exchanging items

Many consumers expect free shipping and low or no restocking fees. Product return costs can quickly add up for small businesses. However, Narvar's State of Returns report found that "[r]oughly 25% of shoppers are happy to pay for a convenient returns experience." Showing customers how your policy benefits them could make shipping or restocking fees more palatable. Consider using terms like "hassle-free" or "easy" and providing more than one low-cost or convenient option.

Provide clear instructions on how to submit a request

It's vital to tell customers how to initiate the return or exchange process. Include this information in your store and on your website, receipts, and business contracts. If your policy is customer-friendly or stands out from competitors, you can use it as a selling point. Indeed, the PayPal company Happy Returns reported that 50% of surveyed shoppers said they "abandoned their cart because there wasn't a convenient return method available." So, highlight your online return portal, home delivery pickups, or free shipping from drop-off locations.

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