Successful businesses know that fair refund policies attract regular customers. People like to buy from businesses that offer hassle-free backup if things go wrong. It is surprising though how many businesses don’t have clear refund policies and are confused about what they should do.

Can a customer insist on a refund?

If an implied condition is not met, you may offer to repair or exchange the goods but the customer has the right to insist on a refund. A refund is appropriate where the goods purchased:

• are so defective that they should not have been sold, for example the don’t work
• break down or develop a serious fault
• weren’t suitable for their intended purpose
• do not match the sample or description provided.

Also, goods that are ‘on sale’ should be treated in the same way as ordinary stock when determining whether or not to give a refund.

‘No refund’ signs - are they illegal?

Yes. Refund signs that impose time limitations for returning goods are illegal. Refund signs with disclaimers in small print may also be misleading because customers may not see them. Examples of illegal signs are:

• ‘No refunds’
• ‘No refunds after seven days’
• ‘We will exchange or repair or give credit notes but we do not refund.’

It is also illegal to have your staff tell people that there is no chance of a refund before a sale.

A refund sign endorsed by Fair Trading and the Australian Retailers Association titled Our refund policy is available. Hard copies of this sign are available from all Fair Trading Centres and the Australian Retailers Association (members only).

Take the time to develop a clear policy on refunds. This doesn’t have to be a long document, it may be just a couple of dot points, but make sure that your staff and customers are aware of and understand your refund policy.

Case study

A customer approached Bill from Victory Electronics to return a faulty toaster purchased two weeks earlier, with the hope of getting a refund. Bill was surprised that the customer had returned with the toaster because he had not experienced any problems with that particular model before. With a good refund policy in place, and the knowledge that he could get a full credit from the manufacturer, Bill provided a full refund to the customer. The customer was so happy with Bill’s refund policy that the customer returned the following week to buy a washing machine and dryer.

Can I refuse to provide a refund?

You do not have to give a refund when:

• the customer simply changes their mind
• the customer already knew of a particular fault
• the goods are damaged after the purchase.

But you can choose to provide a refund or credit note if you wish.

However, if a ‘second’ is found to have some other fault not mentioned, then the customer would have the right to claim a refund, repair or exchange.

How should I provide a refund?

Any refund should be given to the customer in the same form that the customer used to purchase the item. So, if customers buy on credit they are entitled to a credit refund. If they use cash, they are entitled to a cash refund.

Customers can only ask for a refund of their deposit, any trade-in value, any payments they have made and the cancellation of any money outstanding for those goods.

If the customer has already had a reasonable amount of use from the goods, the customer may have a right to only a part-refund or repair.

What are my rights as a seller against a manufacturer?

Manufacturers can’t impose conditions on returns, if the return is part of a statutory warranty claim. If you, as the seller, have provided a refund to a customer on goods because of a design or manufacturing fault, then you can claim against the manufacturer or importer.