Dealing with refunds and returns

Increased online sales means an increase in returns. Here’s how to deal with them.

Early evidence suggests that the coronavirus outbreak is causing a surge in online purchases. 23% of US shoppers said that the frequency of their purchases made online had increased. In China, reported that its online grocery sales grew 215% year over year during a 10-day period between late January and early February. Most of this is out of necessity, with supermarkets and pharmacies that facilitate online ordering noticing the greatest spike, but clothing, books, and electronics stores are also experiencing increased demand. The UK has witnessed shopping sprees on more irregular items such as gym equipment and arts and crafts materials too.

Under normal conditions, online purchases are three times more likely to be returned than those made in-store. If the increase in online sales mentioned above continues, they will equate to a wave of returns, refunds, and chargebacks for businesses. On top of this, the unpredictability of market conditions is putting pressure on supply chains and leading to the cancellation of many services.

To help you navigate this new landscape, here’s how to prevent the need for refunds, manage them when they occur, and strengthen your customer relationships in the process. We know some of these may increase the workload of already busy teams so if there's any way we can assist with advice on payment returns please reach out to us.

Reduce Returns

One way of lessening the impact of returns on your ecommerce business is to do your utmost to avoid them happening.

Have a lenient returns policy

This may seem counterintuitive but according to a University of Texas study, the larger the window provided to shoppers to return an item, the less likely they are to return it. Most online retailers have a thirty day returns policy, but only 5% of shoppers would consider returning an item after thirty days. There’s two psychological factors at play here:

  1. The construal level theory - when something is far off, it is less concrete. 30 days seems soon. 60 days is far away. The further away a specific date, the more abstract it becomes in the mind of the consumer, removing any sense of urgency to return an item.
  2. The endowment effect - the longer people own something, the longer they want to own it. Car dealerships have been using it to great effect for almost a century with test drives. It’s also part of the reason why the freemium business model has become so successful in the last decade. So if your customer buys a handbag, it may not be perfect but after thirty days of use they’ll adapt to the imperfections.

Accurate product descriptions

There’s a number of reasons why products are returned and services cancelled:

  1. Package arrived damaged
  2. Wrong product delivered
  3. Malfunctioning product
  4. Product/service no longer required
  5. Fraudulent returns

In the current climate, one reason has become more prevalent. Due to supply chain issues, pandemic related regulatory measures, or an inability to access, products and services cannot be fulfilled.

The most common reason however, is that the item did not match its description. This accounts for 64.2% of returns. It’s a common occurrence among online clothing stores, where items are returned because the size was wrong, the color was different, or the texture not the same as hoped. To combat this, ensure you provide as much information about an item as possible, and include hi-res images to give shoppers a real feel for the product. Gap’s DressingRoom goes one step further using augmented reality to enable shoppers to try on virtual outfits. CoolBlue has a similar solution for shoppers browsing for a new TV. Using their app, you can select a TV and with your phone’s camera see how it will look in your sitting room.

Parcel with wrong order

The returns policy as a sales tool

Imagine there was a piece of content on your website read by almost every shopper. You’d go to great lengths to ensure it was one of the most convincing, consumer focused, sales driven pieces of content on your site.

Your returns policy is read by 67% of shoppers before making a purchase so why not put as much, or more, effort into it as any other piece of content on your website. Here’s some tips on how to write a great returns policy.

Keep it lenient

As mentioned above, the more accommodating your policy is the more likely shoppers will make a purchase and the less likely they’ll return it.

Make it clear and simple

Write your returns policy as if it was a letter to a friend, a friend who has no time for jargon or legal terminology and prefers their letters written in plain English. IKEA’s no-nonsense returns policy is a good example. If your friend has a particularly short attention span, consider a five point overview at the start.

You also need to be as transparent as possible and make sure your shoppers agree to all of your terms. Clearly display the two essential tick boxes, Terms & Conditions and Refund/Cancellation Policy on your checkout page. This will ensure you've fulfilled your obligation to inform customers of their rights in the unfortunate event of a dispute.

Agreeing to terms and conditions

Ensure it reflects your brand

Too often brands targeted at Millenials have returns policies that seem like they were written by middle aged lawyers. If your website copy, and your brand in general, adopts a friendly relaxed tone, then your returns policy should too.

Managing Returns

You could have a six hundred word description of each item on your website, photos taken by Annie Leibovitz, and Hemingway himself could have written your policy. The returns will still come, eat away at your profit margins, and flatten your conversion rates. Using the practices below you can make it as positive an experience as possible for both you and your customers.


Be clear, open, and responsive in your communications around returns with customers. Just as customers like to be continually updated as to the status of our orders, they expect the same level of transparency about their returns. Giving customers options for their returns, such as rescheduling of delivery, or the provision of vouchers, will go a long way towards keeping them happy

Deliver the same standard of customer service as you would for a sale

Zalando are famed for their returns management. They realized early-on that the best customers are also the ones who return the most orders. So they began to treat their returns as another opportunity to strengthen their relationship with high-spending customers.

If items are returned or cancellations are made, it’s important to recognise this as an opportunity to maintain your long term relationship with a customer. If they cannot use your service (say due to travel bans or risk to health) or means beyond their control, then it is reasonable to not financially punish them. Better to keep a customer and get a return visit than lose them for life.

Avoid chargebacks

A chargeback is a reversal of a previously authorized transaction. It occurs when a shopper wants funds returned from a merchant, the merchant refuses, and the shopper asks their issuer to send the funds back to them from the merchant. Chargebacks, and the penalties and hassle they incur, can be avoided by quickly issuing refunds.

Traditionally, refunds can be operationally complex as the funds have to be transferred from your bank account back to the customer’s. Setting up a refund reserve can alleviate some of this complexity. A refund reserve is a pool of funds that sits in your company account on the payment processor side. Refunds can be issued automatically from it, cutting down on your administration hours and making sure the funds are back in your customer’s account in no time. In the Adyen platform, reports indicate when the reserve has become depleted.


If you refuse a refund request, your customer can formally dispute the transaction with their card issuer, initiating a chargeback. If you feel you've adequately delivered your product/service, you have the right to defend that chargeback request with a dispute. When you decide to defend a claim, it’s important to clearly articulate your case and support it with documentation. In the Adyen platform, we provide clear guidance on the documentation you should include, from proof of delivery to evidence that the claim is insured and will be covered outside of you issuing a refund.

Keep up-to-date with government regulations on when there is no chargeback right available, which may be pertinent during this pandemic. For Adyen customers, we’ll communicate this to you within our platform.

Returns happen

Returns are a facet of any business. Unfortunately, at this time, many businesses may have to refund substantially more than under normal conditions. The best way to deal with them is by reducing their frequency. When they do happen, you can manage them through open communications and a well managed refund reserve. Utilizing a single payments platform can also elevate some of the pressures on your business, particularly when it comes to reconciling, executing, and disputing refunds.

If you need help with remediation plans to reduce the levels of disputes or fraud related to your account, please feel free to contact us.

Looking for more in-depth instructions on how to handle refunds within Adyen?

Check out our docs

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