5.5 Returns, refunds & exchanges policies

Should you decide to accept returns, refunds or exchanges, it is important to have a set policy that will keep both you and your customers happy. Although this is common practice, do note that most small business will struggle to keep these policies as their margins are too low.


A return policy is when you allow customers to return an item for either a refund, product exchange or store credit. From a business perspective, the key differences between a refund and an exchange are that a refund may result in a reduction in sales, whereas an exchange is where the sales registered will not be impacted.


It is important to define the expected terms for returns, such as a time-frame and the condition of the items whether it would be “unused”, “unworn” or “with all tags still attached”. This will help in making sure the items can be sold again after it has been returned. You should also be upfront about any return shipping cost, it should be clearly stated in your terms if returns are free or if the customers are expected to bear the shipping cost.


Allow money refund and exchanges based on any reason

  • This means that your customers can exchange or return any item they want, even if the reason is “I don’t like it.”
  • Although not the most budget-friendly policy, it shows that you are committed to keeping your customers happy.
  • This is also a policy that only larger companies can adopt as they have already allocated their budget to cover the cost of returned items or their profit margins are large enough to absorb these costs.


Allow returns and exchange/refund based on limitations

  • This policy is far more common, it allows customers to return or exchange product on limitations such as sizing or defects.
  • The limitations can be decided by you. If you are unable to offer exchanges or free returns, you may also incur a return fee.


Allow exchanges only

  • This is probably the most budget-friendly policy as this keeps the cost incurred relatively low but do keep in mind of all the possible scenarios, such as how do you compensate a customer who asks for an exchange but you already ran out of the size requested? What is your next course of action? Will you allow them to exchange another item of equal value or provide them with another form of compensation?


Other things to consider:


  • What’s the eligible timeline for returns?
  • What items can be allowed for an exchange/refund?
  • Do you or the customers bear the return costs?
  • Do you allow exchanges for any same-priced items or only exchanges of the same item in size/colour?