Small business series: All about customer returns

Customer returns. It’s a part of the purchase journey that any retailer would rather avoid, right? Especially for a small-to-medium sized business (SMB) where returns and exchanges can use up time and money.

Online sales have increased by over 46% in the UK since 2020, and, as you’d expect, while online shopping continues to rise in popularity, businesses are seeing higher levels of product returns. And the evidence is there to back it up, with the rate of online returns increasing year-on-year. Recent research shows that 38% of UK online shoppers now feel more confident in returning online purchases due to the pandemic.

Having high volumes of returns leads to an increased loss of earnings for SMBs as they refund customers, and online returns alone cost UK retailers an estimated £5.2 billion a year on average.

That’s big money.

But it doesn’t have to be a negative part of ecommerce. And that’s where this guide comes in. To help you understand everything you need to know about returns, we’ll cover:

• A customer-centered approach to returns
• The legal side of customer returns
• Does my business need to accept returns?
• What is a returns policy?
• Who sets a returns policy?
• The importance of having a good returns policy
• What protection do retailers have?
• Evolving from ‘good’ returns to ‘five-star’ returns
• The importance of a branded returns portal

The short answer is almost always yes. In the UK, consumer rights come first when it comes to returns, so it’s important to be aware of your legal duties and responsibilities.

Under The Consumer Rights Act 2015, consumers may be entitled to a refund, replacement, repair and/or compensation where goods are faulty or not as described.

With any sale, online or otherwise, customers can expect goods to be of ‘satisfactory quality’, ‘as described’, ‘fit for any purpose made known to the seller’ and to comply with other trading standards laws such as product safety or unfair terms and commercial practices. That could include items that aren’t manufactured or labelled in accordance with UK safety laws, or extra hidden fees and charges in the small print.

The seller is responsible for the products or service until they reach the consumer, or someone they have nominated to accept delivery on their behalf. That means the retailer is liable for non-delivery or any damages even if it’s the fault of the courier.

There are even more rules for online sellers for both before and after an order is placed that you need to be aware of.

Occasionally, there are times when retailers don’t need to offer a full refund. Such as if the customer was aware that an item was faulty when they bought it, or the item was damaged whilst the consumer was attempting to carry out a repair. (However, they may still have the right to a repair, replacement, or partial refund – so be aware of the rules).

A returns policy covers the rules the retailer creates to manage how customers return and exchange unwanted merchandise they’ve purchased. It tells customers what items can be returned and for what reasons, as well as the timeframe over which returns are accepted.

Whilst offering returns is a legal obligation, as a retailer you don’t actually need to state a returns policy at all, unless your policy offers the consumer more than their minimum entitlement in law. However, it’s really in your best interests to have a concise and clear returns policy, to make customers feel of secure; that what they are buying is guaranteed to be what it’s represented to be. If a retailer doesn’t show transparency through having a returns policy, then consumers may avoid buying the product.

A returns policy helps to build trust between the retailer and its customers. Customers are generally at their unhappiest when they have to return an item, and the last thing the retailer wants to do is make their dissatisfaction worse by making the return process difficult.

By offering a clear and consistent way for customers to return purchased items, the retailer can actually increase repeat purchases. In fact, 36% of customers would be reluctant to reorder from retailers that fail to provide clear details of how to write a return.

You can feel confident that your returns policy offers up all the information your customers are looking for by using a policy template that can be edited to suit your own business needs.

There are some circumstances in which sellers can refuse returns from a customer and do not have to issue a refund.

For certain products, such as personalised or custom-made items, or perishable goods (like food), retailers only have to offer a refund if the items are faulty. However, when buying online (distance selling), customers have the right to cancel their order for a limited time even if the goods are not faulty. Retailers have to offer a refund to customers if they’ve told you within 14 days of receiving their goods that they want to cancel – and they don’t have to provide a reason. They have another 14 days to return the goods once they’ve told you. You must then refund the customer within 14 days of receiving the goods back.

As a business, the last thing you want is a dispute with a customer. Unfortunately, sometimes issues arise. With increased prevalence of chargebacks, businesses are at a greater risk of losing money from customers who decide to file a dispute with their bank instead of working with the retailer to resolve the issue or receive a refund. A chargeback is a debit or credit card transaction that’s reversed by the cardholder’s bank after they dispute a charge on their account.

It’s important to understand why customers initiate chargebacks — and what you can do to both prevent and dispute them. Some of the most common reasons that customers might file a chargeback are fraud, delivery issues, pricing issues, and product dissatisfaction. Some customers may even go down this route to avoid the returns process, if they feel that it’s too difficult, don’t understand it, or the period to return their item has expired. Another reason to have a transparent returns policy.

Customers will usually dispute a transaction if they do not receive the items they buy, so it’s important to keep receipts and track the goods that you ship. This will help if there is a disagreement on goods not delivered.

Although a good returns process can benefit sales, it’s obvious that the fewer returns, the better for business. The higher the rate of customer returns, the more pressure there is on profit margins, particularly for smaller businesses. Although it’s impossible to completely eliminate returns, there are measures that online retailers can have in place to minimise the number of items being sent back. While some things are just inevitable, such as items damaged during shipping, around two thirds of returns are easily preventable with the right processes in place. Overall, make sure people are making an informed purchase decision when you are selling products. If they understand the product, its features and uses, they’ll be less likely to be disappointed when it arrives.

Exchanges are just as important as returns. By making it as easy to swap to a different size or item, as it is to request a refund, you can convert the return into another sale that would otherwise be lost. With strong profit margins, offering a replacement product instead of a full refund can keep your business cash flow positive. Our recent survey found that those with strong returns processes in place will see a return on investment, with 61% of UK customers saying they would be more likely to exchange a product bought online than get a refund if exchanging was made simpler.

By offering free returns, you’re giving customers a statement of confidence. Lack of confidence is one of the main reasons that customers abandon the virtual basket, and 52% of customers would be unlikely to shop with a retailer again if they charged for returns.

If a customer knows they can post back an unsuitable item at no cost to themselves then they are more likely to place the order in the first place. So it’s no surprise that free returns have become an increasingly popular.

It’s clear that a free returns process can be paramount for the success of a business. 78% of customers said they are more likely to purchase from a brand if they offer free returns, as it makes the process much easier for them, so it can helps your business to stand out from the crowd.

The reality of an ecommerce business is that returns are a fact of life. But by using outdated, manual methods, managing returns will cost far too much time and labour, which SMBs simply can’t afford to lose. Manually managing returns can involve many different steps. The time that passes from the parcel being returned, to when the refund is received by the customer, is in many cases much longer than it has to be. By fully integrating returns management into your strategy, even smaller businesses can streamline this costly process into a profitable operation.