Lay-bys
A lay-by sale is a form of interest-free buying where payments for goods can be made by three or more instalments and the goods are not delivered to the customer until the full purchase price is paid.
What information do I need to give the customer?
If you offer lay-by sales, you will need to provide your customers with all the necessary details up-front. You must give customers a written statement of the lay-by terms, including the purchase price, deposit and balance, instalment and final payment dates and amounts and any cancellation charges. You can decide what your terms will be and how to provide this statement. A common method is to print (or rubber stamp) it on a sales docket, envelope, invoice or in a booklet.
Top of pageCan I apply a cancellation charge?
You are allowed to apply a cancellation charge if the lay-by is cancelled, but you must include details of the cancellation fee in the statement of lay-by terms, otherwise you may have to refund all the money paid if the lay-by is cancelled. You cannot deduct a cancellation charge if the charge was not discussed. The cancellation charge may be shown as a dollar amount or expressed as a formula for calculation (eg. 1% of the purchase price). It’s up to you to make sure your customers are advised of what the cancellation charge is, in case they change their minds about the lay-by.
How much should the cancellation charge be?
Under the law, a lay-by cancellation charge must be no more than your reasonable selling costs (eg. storage, administrative expenses) or any loss of value on the goods (but remember, loss of value needs to be proved).
The Australian Retailers Association – New South Wales (ARA) suggests that $25–$30 is an average actual selling cost of a lay-by, although this may vary. Many larger retailers make no charge for cancellation, others limit the cancellation charge to a few dollars, particularly if the purchase price is under one or two hundred dollars.
The ARA also has information on lay-bys available to members that includes sample copies of lay-by dockets and draft letters which you can use when terminating a lay-by. To order, the ARA can be contacted on (02) 9290 3766 or visit their web site.
What about goods that are being made or are on order?
Under the law, a customer can agree to pay instalments for goods being made especially for them. These progress payments allow you to meet the ongoing costs of making the goods, including your labour. Don't forget that if the cancellation charge is not disclosed in the statement of lay-by terms, you may lose money if the customer cancels the lay-by.
What if a lay-by is cancelled?
You are entitled to cancel the lay-by (and keep the cancellation charge) only if a customer has breached a term of the lay-by, for example, by being late with a payment.
However, you must first give the customer written notice, unless the customer accepts notice in person or by telephone or in some other way. The notice must allow the customer to fix the problem (eg. by making the payment) within a specified period of not less than seven days.
A customer may cancel a lay-by by telling you in writing, unless you accept cancellation in person or by phone. When a lay-by is cancelled you are allowed to keep (or recover) the cancellation charge specified in the lay-by statement but you must refund the balance of payments to the customer.
When can a customer get a full refund?
You must refund all money, including the cancellation charge if:
- there was no written lay-by statement made
- there was no cancellation charge in the statement
- the lay-by statement was misleading or deceptive
- you haven’t performed a condition of the lay-by statement
- the goods were not supplied when and as agreed.
Can goods be inspected while on lay-by?
While the lay-by laws do not specifically require you to let your customers look at goods while they are paying them off, this may still be implied from the lay-by agreement. Unless they are on order, it is reasonable for customers to know their goods are okay by inspecting them at your convenience. A customer may be entitled to cancel the lay-by and expect a full refund if the goods are not available at any time they wish to pay off the lay-by.
Case study
A customer had a pair of shoes on lay-by for three weeks, then decided to cancel the lay-by because he had seen another pair which he preferred in a competitor’s store. He spoke to the manager, asking for a complete refund of the money paid so far. The manager told the customer he could only have a part refund, because he would be charged a fee for cancelling the lay-by. The customer took the matter to NSW Fair Trading where it was revealed that the retailer had disclosed the cancellation charge to the customer at the beginning of the lay-by in the written statement. The customer was advised by Fair Trading that, because he had been provided with this information up-front, the shop manager was entitled to return only a part refund.