The refund fee is charged anytime you make a refund to a customer’s card for any reason. It covers the transaction cost of moving the funds back to the customer’s card-issuing bank. This fee varies depending on the bank. We see refund fees as low as $1.00 to $3.00, but for offshore merchants they can double in price. Refunds are important, however, because if a customer is not happy with the product or service, the situation may turn into a dispute or a chargeback, which is always much more expensive for the merchant and also tarnishes the merchant’s clean processing record. So, the best policy is usually to refund an angry customer rather than to let the transaction turn into a formal dispute.
Merchants do a number of things to prevent chargebacks and reduce situations that lead to refunds. The most effective methods include:
- Clearly stating your return and refund policy. If your policy is written in legal language, is overly complicated or too general, customers are likely to misinterpret it, get frustrated reading it, or simply ignore it. Any of these reactions will lead customers to hastily initiate a chargeback or demand a refund.
- Prominently displaying your return and refund policy. Burying your policy in a tiny link at the bottom of a web page, in the hope that customers won’t find it, is a strategy almost sure to backfire. Having an easy-to-find link on every page of your website is a great start, but don’t stop there. Consider adding links to your social media pages, and perhaps even including a written policy statement in mailed invoices and with actual shipments. Some merchants believe talking up the return policy leads to more returns or makes customers doubt the quality of the product. But more often, hiding the policy raises red flags with customers. Prominently displaying the policy builds trust.
- Clearly describing the purchase on customer credit card statements. If customers see a charge on their statements they do not recognize, they may initiate a chargeback or investigation with the credit card company without making any attempt to contact the merchant. Remember that credit card bills are issued monthly — a customer’s recollection of the purchase may have faded by the time he/she has the credit card statement in hand.
- Having a fair refund and return policy. If you stack the deck against the customer, with return/refund policies that are too strict, involve heavy fees or require a mountain of paperwork, the only thing you’re likely to accomplish is inspiring the customer to initiate a chargeback on the order — or even on the return/refund itself. One of the touchiest areas with returns is when the customer is required to pay return shipping charges. It’s a hot button issue that can create serious arguments even if the shipping charges are not overly expensive. If you work with a logistics company, it may have systems and procedures in place to make covering return shipping charges affordable for you.
If you are incurring refund fees and would like to discuss ideas to minimize them, please contact us now!