Every merchant tries to create a refund policy that will protect each sale. Most payment processors prefer at least a 30-day unconditional refund policy. Many insist their consumer ship back the unused portion of their product. No merchant wants to be taken advantage of by having their product used in full and the customer receive all the promised benefits. Then request a refund just because consumers can get away with it.
Think of it this way, handling refunded products can prove costly in several ways. Your fulfillment company may charge you for the effort to receive and track your returned items. Customers often get lazy or annoyed with the idea of shipping back products. It's time consuming to pack and arrange shipping. Sometimes customers are averse to paying the paying the postage charges to ship a returned item. Some payment processors are now requiring merchants provide refunds without receiving the unused portion of their product back. Take a long term approach and a few hits along the way. The goal is to assure customers don't contact their bank credit card company and initiate a chargeback.
A Refund Versus a Chargeback
Not giving a refund can lead to a chargeback, which can be more detrimental to a merchant's long-term success.
A chargeback is a refund the merchant is forced to give as opposed to a refund voluntarily given. If chargebacks exceed 1 percent of total sales, you could pay penalties or have your merchant account shut down. Once you are in chargeback trouble, applying for another merchant account becomes much more difficult. Many payment processors will deny your application. Others may accept you, but charge a higher rate which can be double. You will be asked for a larger reserve.
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Curtis Kleinman is Chief Operating Officer at Swipe Payment Solutions.