Three coworkers working in customer service, sitting at a desk wearing headphones.
Even the best products will still leave some customers unsatisfied, so having a well-thought-out policy for customer returns is essential. — Getty Images/kupicoo

How you handle customer refunds affects your costs and reputation. A poor return process could result in dissatisfied customers and lost sales. It also increases your labor and reselling expenses, such as repackaging, shipping and restocking. In comparison, effective returns management improves visibility, control and speed.

Assess your current approach and look for issues impacting customer experiences or your bottom line. Then implement the following best practices for handling customer refunds.

Update your return and refund policy

People request refunds for many reasons, including damaged products, ill-fitting items or the product or service simply not being up to their expectations. The last thing you want is people to think you don't stand behind your products or are purposely trying to make it difficult. Clear language builds better customer relations. Make it easy for customers to find your refund policy by linking to it from every product and order page.

Keep your process concise and user-friendly by:

  • Providing answers to frequently asked questions (FAQs) about your refund policy.
  • Including a scannable list with the main information, like eligible products, item condition and shipping fees.
  • Explaining how customers will get their refund, such as through their original payment method.
  • Offering extended holiday return, exchange and refund dates but shortening the return window during regular times.
  • Noting alternatives for special situations, such as free exchanges if you sent the wrong item.
  • Outlining the timeline for returns and refunds, including the return window and additional time for bank or credit card processing.

[Read more: 5 Ways to Make Your Business More Convenient for Customers]

Respond quickly to customer refund requests

According to UPS Pulse of the Online Shopper, 73% of respondents said, "the returns experience affects their likelihood to buy again from a particular retailer," and delays contribute to dissatisfaction. Therefore, it's important to track your response times to customer refund requests, from the initial contact to the date they receive their money. An email autoresponder tool should immediately reply to new messages, and you should have processes to identify and prioritize communications.

If possible, consider offering live chat on your website. This is among the quickest ways to clear up confusion about refunds or returns, and many people prefer this method over making a phone call. Also, don't forget to follow up with your clients to ensure they're satisfied with the refund experience.

Make it easy for customers to find your refund policy by linking to it from every product and order page.

Offer an online customer portal for refunds

Streamline the customer refund process by allowing people to sign in to their accounts, view orders and print return labels. Generate a return list with check boxes for each item and ask clients to include it inside the package. You may also want to add any suggestions or requirements for packaging and shipping. The return sheet helps consumers put the right items in the shipping container, and your warehouse staff can use it as a picklist to confirm returns.

Prevent fraud

According to the National Retail Federation (NRF), in 2021, 10.6% of returned online purchases were "deemed fraudulent." As a result, "for every $100 in returned merchandise accepted, retailers lose $10.30 to return fraud." Use delivery tracking on all shipments to protect your business against people saying items didn't arrive.

Reduce fraudulent returns by training your staff to verify receipts, point-of-sale (POS) records and item tags. Also, inform teams about various types of return fraud, such as price switching, wardrobing and stolen goods.

Reduce your total rate of returns

The NRF reported that "the 2021 total rate of returns (16.6%) is up from 10.6% during 2020, but online returns in 2021 are in line with recent years at an average of 20.8%." Your return management process should address prevention methods, as stopping the problem before it occurs is one of the best techniques.

Decrease refund requests by:

  • Offering free trials or samples.
  • Writing clear and informative product descriptions.
  • Updating item details based on reviews and feedback.
  • Guiding customers to the right product or size with website widgets or tools.
  • Packing items carefully and changing packaging if you experience higher rates of damage.
  • Reviewing your warehouse practices to find and reduce packing errors.

[Read more: 7 Ways to Improve E-Commerce Customer Retention]

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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