27 Mar Refund Policy – A guide to business owners
A refund policy is an important document as it ensures that the business complies with all its legal obligations to do all things necessary to bring to the attention of consumers all the legal contractual documentation prior to purchase.
They need to be brought to their attention and should be freely available on your website.
They should also be in plain English, clear and unambiguous and in compliance with the Australian Consumer Law.
They should be very clear on the conditions surrounding returning products to minimise the chance of misunderstandings. A well-drafted Refund Policy assists in protecting your business’ interests and will maintain a positive relationship with customers.
This article will explore the consumer guarantees and the obligations they create, when you, as a business owner, are legally required to provide a refund, situations where it is at your discretion to provide refunds and useful clauses to include in a refund policy.
A refund policy should acknowledge that customers possess certain rights under the Australian Consumer Law and that goods and services are accompanied by implied guarantees that cannot be excluded.
The following consumer guarantees apply to products:
- The product must be of acceptable quality that is safe, durable, with no faults and looks acceptable;
- It fulfils the purpose that it is intended for;
- It must match the description on packaging and labels and in advertising;
- It must match samples provided to consumers;
- It comes with complete title and ownership; and
- It is not accompanied by any debts or charges.
The following consumer guarantees apply to services:
- The services must be provided with acceptable care and skill or technical knowledge;
- It must be fit for the purpose or provide the results that were advertised; and
- The service must be delivered within a reasonable time when there is no agreed delivery or end date in place.
If a business fails to deliver the above guarantees, a customer is entitled to have their product repaired, replaced, refunded or have the service cancelled.
A description of what’s considered a major fault or failure should be provided in the policy. This could state that a product is considered faulty if it has a defect that cannot be repaired or if it isn’t fit for the purpose for which it was created.
A major failure is where the product has a problem that would have stopped someone from buying it if they had known about it, if it’s significantly different from the sample or description, if it doesn’t do what it’s supposed to and can’t be fixed in a reasonable time, or if it’s unsafe to use.
It should be noted in a refund policy that under the Australian Consumer Law, if a customer purchases a product or service that has a major fault or failure, they are entitled to cancel the service contract, receive a refund, have the item replaced or repaired, or be provided with compensation for loss and damages.
You could also include in the refund policy that if a customer returns an item that they claim is faulty, that you will have the item assessed, either by a staff member or a qualified 3rd party to determine the nature and cause of the fault. You should also note that your business reserves the right to decline an exchange, refund or repair request where the product fault was caused by the customer’s misuse or neglect.
Many refund policies also note that if the problem with a product or service is not a major fault or failure that the customer is entitled to have the failure rectified in a reasonable time. If the failure is not rectified, the customer is entitled to a refund for the product or service and cancel the contract for the service. The customer is also entitled to be compensated for any other reasonably foreseeable loss or damage from the fault or failure in the product or service.
It is unlawful to state that your business doesn’t provide refunds under any circumstance because this is in fact unlawful and contravenes the Australian Consumer Law, especially if consumer guarantees are breached.
As noted in the case of Carlill v Carbolic Smoke Ball Company  1 QB 256 in order for a contract between a you and a consumer to be valid, you must do all things necessary to bring all the contractual terms and conditions, including refund policies, to the attention of the consumer, so that the agreement is sufficiently certain and complete and the parties’ rights and obligations can be identified and enforced. This was also noted in the cases of Whitlock v Brew  HCA 71 and Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd  HCA 8.
Change of mind returns
You, as a business owner, are not obligated to provide refunds, exchanges or credit notes for change of mind purchases. You are also not obligated to provide a refund or exchange if the customer is not able to provide proof of purchase, even if the product is faulty.
A common practice of many businesses, to ensure customer satisfaction, is to allow refunds and exchanges for change of mind purchases provided the customer returns the item within a certain period of time, for example, 14 to 30 days, provides proof of purchase in the form of a receipt or bank statement and provided that the product being returned is in re-saleable condition, meaning the item is in its original packaging and is unused.
If the customer satisfies the above conditions for returning products, you might also consider offering customers a credit note for the value of the product as an alternative to a refund.
Some businesses also include in their refunds policy that in the event a customer is unable to provide proof of purchase, they may, in their absolute discretion, provide the customer with an exchange or credit note for the value of the item. This is added as a courtesy to customers, but it’s at your discretion whether or not you provide an exchange or credit note.
How to return items
It’s common to include in the policy that products can be returned to any store of the business. It should be noted that refunds can only be paid in the same manner as the original purchase or refunded to the account used to pay for the item. In some instances, where the credit card attached to the original purchase cannot be produced, you may consider only providing a gift card or credit note to the customer.
If your business sells products online, then you should include the process customers should follow for returning products, such as filling in an online returns form and posting the products back to the business. You might want to consider whether or not the business wishes to pay for the postage of returns, and if so, this can be included in the policy.
As you can see, there’s actually a lot to consider when drafting a refund policy, ensuring that it’s tailored to your business and to protects its interests, while encouraging positive relationships with customers.
It’s vital that the policy is clear on when you are going to provide refunds, exchanges or repairs and, regarding change of mind purchases, placing clear conditions on when a customer can return an item.
We can draft your refund policy for a fixed fee $450 + GST, fully tailored for your business and drafted by a qualified lawyer.
Contact us today if you require any assistance with your Refund Policy.
- 27 March, 2020
- 27 March, 2020
- 17 February, 2020
Ian Aldridge is the owner and principal lawyer at Progressive Legal. After 12 years practicing as a litigation lawyer for small, medium and large firms in Australia and the UK, Ian returned to Australia disillusioned with the way Law was being practiced at all levels, especially for small business.
Ian started Progressive Legal in 2014 and provides a range of fixed-priced legal services for small business owners. Ian changed the way legal services are provided in Australia, by building Legal Shield™, a legal subscription to obtain tailored legal documents immediately and pay over time.
Ian has completed a Degree in Economics and Law from Macquarie University, has a Diploma of Legal Practice/Professional Program from the NSW College of Law (Commercial Law, Litigation, Legal Advice) and is a Key Personal of Interest (KPI).