One common dilemma in retail is that businesses don’t want to make refunds, but customers don’t want to make purchases with no reassurance, either. If you opt for strict or nonexistent refund policies, you’re probably doing yourself a disservice, as you could be deterring customers, hurting your reputation or increasing your chances of forced refunds via chargebacks. Compromising with your customers can often help you avoid these pitfalls.
Let’s take a closer look at how refunds affect businesses and what you can do to find a middle ground between a no-refund policy and a free-for-all.
The first solution you might consider if you want to avoid the hassle of returns is to simply deny refunds overall. It may sound tempting upfront, but these policies are often restricting and can lead to more costs in the long run. They’re also a key part of customer satisfaction and will significantly influence how eager people are to buy from you.
How do refunds affect your business? Some of the pros of a no-refund policy include:
Meanwhile, the cons of not offering refunds include:
Ultimately, it depends on your business landscape and your goals. For most merchants, it makes sense to offer at least some type of refund policy.
Of course, offering a return policy doesn’t mean taking back everything without any stipulations. It’s crucial to create a policy that’s advantageous for both parties. While customers should feel reassured that they aren’t out of luck if things don’t work out, you should be able to know that customers won’t get to take advantage of you. There are many steps you can take to minimize the chance of returns in the first place.
Let’s look at making the policy first. Below are some things to consider when building your return and cancellation policies:
Return policies can vary in their leniency by timeframe, type of item and requirements, such as needing the original receipt or tags. Merchants can also be more or less lenient in how they refund the purchase. They might choose to provide only a partial refund or exchanges, rather than full refunds. Lenient policies can both boost sales and improve the customer experience.
You might be worried that lenient policies will increase the number of refunds, and that’s possible, but there are several steps you can take to minimize that chance. It generally requires being proactive and delivering solutions prior to the purchase. Consider offering free trials or samples, so customers can try the item risk-free, or creating buying guides and detailed sizing information. These resources can help customers make an informed purchase and better understand the product.
Another key part of the returns process is your customer service. It should be easy for customers to get in touch with your team, which may be able to offer alternatives or simple fixes. Make sure representatives have solutions available and don’t make the situation difficult.
While both refunds and chargebacks result in the payment getting sent back to the customer, refunds are much more preferable. Chargebacks occur when the customer disputes a charge with their credit card issuer or payment processor and the transaction is reversed for a forced refund. If a customer submits a chargeback, the merchant needs to send in a rebuttal and go through the dispute process to try and get the money back. Even if they win, the chargeback has significant downsides for the merchant.
Chargebacks often come with additional fees, and too many of them will cause your chargeback ratio to rise, which could even result in being denied a merchant account by many payment processors. If you lose the chargeback, you might be out of the cost of the item or service, along with the refund that goes to the customer and any additional fees that come with the process. A refund is always preferable to chargebacks.
It’s especially important to avoid chargebacks if you’re in a high-risk industry. These organizations, such as those selling firearms, CBD or travel or credit repair services, already tend to have a harder time working with payment processors that may charge higher fees or deny them due to their high-risk status. A high chargeback ratio simply adds to the risk associated with a business.
Offering refunds is one of the best ways to avoid chargebacks. Still, it isn’t a catch-all. Even if you do have a lenient return policy, chargebacks can come from many sources, such as customers not recognizing the transaction on their statement or not being able to reach your customer service team.
While providing refunds can help reduce chargebacks, reducing chargebacks also helps you find the peace of mind to widen your return policy, since you can reduce the possibility of fraudulent refunds and minimize the costs associated with chargebacks.
Some strategies for mitigating chargebacks and perfecting refunds for businesses include:
No matter what you do to prevent chargebacks, it’s a good idea to track and learn from them. Monitor your chargebacks and try to collect information about which banks or products are most likely to cause them. Maybe a product description is inaccurate or a certain bank likes to see a piece of information you haven’t been including in rebuttals. Look at things like marketing and signage, too. Your social media team may have put out a sign that’s worded poorly, bringing in a slew of confused customers.
Another great way to mitigate the effects of chargebacks is to work with a high-risk merchant account. These accounts are designed for businesses with high numbers of chargebacks or that work in high-risk industries such as credit repair, CBD or adult products or services. Too many chargebacks and refunds can hurt your relationships with some banks and processors, but high-risk accounts don’t punish you for these occurrences. We don’t stop doing business with you just because you tend to get chargebacks.
By giving your customers the chance to solve their problems with you instead of their bank, you can do yourself a lot of favors. At Zen Payments, we understand that being labeled high-risk shouldn’t get in the way of how you run your business, such as how you take returns. That’s why we work with a wide network of banks to offer processing solutions and chargeback protections for these types of organizations.
Our high-risk merchant accounts offer affordable, secure payment methods, so you get more freedom and options for keeping your customers happy. Grow your business by partnering with the experts in high-risk merchant accounts. Whether you work online or in person, we can help you set up the right solutions, all backed by 24/7 support. To learn more about working with Zen Payments, reach out to us online or at (801) 405-9888.