As the festive season approaches, businesses often experience a surge in refund and exchange requests. Large chain stores typically have a reasonably flexible exchange/refund policy, particularly if you have a receipt. However, I regularly come across small businesses that don’t have a policy or accidentally circumvent their legal requirements. It’s certainly not unusual for small business owners to not know how to manage refund or exchange requests when they occur. Managing refund requests efficiently and in accordance with consumer rights is crucial for maintaining positive customer relationships and ensuring legal compliance. Here’s what you need to plan for:


Consumer Rights and Guarantees

Consumer rights in Australia are protected by law, and customers have certain guarantees they can rely on to protect them when they make a purchase. Knowing these guarantees is essential, as they determine the course of action when a customer requests a refund or exchange.

When a product or service fails to meet consumer guarantees, businesses must provide solutions like repairs, replacements, or refunds. Consumer guarantees apply to both products and services, and the type of remedy depends on the nature and severity of the issue.

Tip: If you own or manage a business, you MUST understand your obligations under these laws. Talk to a small business lawyer like me to get clarity on your specific circumstances.


Occasions When Refunds Aren’t Entitled

Not every situation warrants a refund. Clearly outline conditions where customers aren’t entitled to refunds, such as changing their minds, finding a cheaper option elsewhere, or misusing the product. Despite a refund not always being a legal requirement, you may find accepting refunds for a change of mind an acceptable business practice. Whichever you choose, you need to address it in your policies.

Refunds and exchanges are particularly challenging when products are made to order, so it’s worth being transparent about what can and can’t be returned or exchanged during the sales process.

Tip: Clearly communicate situations where refunds aren’t applicable, especially regarding change-of-mind policies.


Major Problems with Products

Major problems with a product make consumers eligible for a refund or replacement. These include safety concerns, significant deviations from the product description, or issues that prevent normal use.

Customers have the right to return faulty products, and the return process should be straightforward. Businesses are responsible for return costs, especially for large or heavy items where the product is faulty.

Let’s say a customer purchases a high-end camera online, relying on the seller’s description and sample images. Upon delivery, the camera fails to operate as described—the autofocus is malfunctioning, and the images produced are about what can and can’t be returned or exchanged during the sales process, which is significantly lower quality than demonstrated. This is a major problem because:


Deviation from Description: The product is very different from the detailed description and sample images provided, affecting the customer’s ability to use it for its intended purpose.

Inability to Use for Normal Purpose: The camera, designed for high-quality photography, can’t be used for its normal purpose due to the autofocus issue and poor image quality.

Unfixable Within a Reasonable Time: Attempts to troubleshoot and fix the camera within a reasonable time fail, indicating that the problem is not easily rectifiable.

In such a scenario, the customer is entitled to choose between a full refund or a replacement of the same type of product. The business must address the issue promptly, ensuring the customer’s rights are respected, and provide a remedy that aligns with consumer guarantees.

Tip: What major problems, even if highly unlikely, could occur with your products?


Major Problems with Services

For services, major problems involve unsafe situations, serious issues that hinder the service’s purpose, or the inability to achieve a specified result. Customers can choose between cancelling the contract and receiving a partial refund or keeping the contract at a reduced price.

If a business changes the nature of services during a contractual period, customers may be entitled to remedies for major problems. Notify customers early, seek consent for the changes, or offer refunds for those who don’t agree to the altered service.

For example, a consumer engages in a pre-Christmas renovation service to renovate their kitchen, expecting a professional and timely completion. However, the service encounters significant issues:


Unsafe Situation: During the renovation, the service inadvertently causes structural damage, creating an unsafe environment within the consumer’s home.

Serious Problems Affecting Usability: Multiple problems arise, such as faulty electrical wiring and plumbing issues, making the kitchen unusable and potentially hazardous.

Failure to Achieve Agreed Result: The service fails to achieve the agreed-upon result—a modern and functional kitchen—due to subpar workmanship and unforeseen issues.

Inability to Fix Within a Reasonable Time: Attempts to rectify the problems within a reasonable time prove unsuccessful, indicating that the service is unable to swiftly correct the issues.


In this scenario or similar, the consumer has the right to:

Cancel the Contract and Obtain a Refund: The consumer can choose to terminate the contract and receive a refund. However, this refund may not be the full amount, as the consumer may need to compensate the business for work done up to that point.

Keep the Contract but Pay a Lower Price: Alternatively, the consumer can opt to keep the contract but pay a reduced price that accounts for the problems encountered during the service.

This example highlights the importance of businesses delivering services that align with consumer expectations, ensuring safety, quality, and adherence to agreed-upon outcomes.


Minor Problems with Products or Services

For minor problems, the business is obligated to fix the issue for free. However, a business may offer a replacement or refund at its discretion.

By understanding consumer rights, clearly communicating refund policies, and promptly addressing product or service issues, businesses can effectively navigate the influx of refund requests during the festive season. Taking a proactive and customer-centric approach ensures compliance with regulations and maintains positive relationships with customers.

There are always refund requests you don’t prepare for, so when you need guidance on a specific issue, book a $97 Pick My Brain session to clarify your obligations and practical next steps.