You're setting up your online store. The products are ready. The website looks great. Payment processing is configured.

Then you get your first customer email: "What's your return policy?"

You freeze. You haven't thought about this yet.

Here's the truth: a clear refund policy isn't just good practice—it's often legally required. And it's one of the first things customers look for before clicking "Buy."

This guide explains what needs to be in your refund policy, how it varies by business type, and how to write one that protects you while keeping customers happy.

Why You Actually Need One

A refund policy isn't optional for most online businesses. Here's why:

Legal Requirements
Consumer protection laws in many countries require you to disclose your refund terms before purchase. The EU mandates a 14-day cooling-off period for most online purchases. California requires clear disclosure of return policies. Australia requires refunds for defective products.

Payment Processor Requirements
Stripe, PayPal, and most payment processors require you to have a refund policy before they'll process payments. No policy means no payments.

Marketplace Requirements
Amazon, Etsy, Shopify, and other marketplaces require sellers to have refund policies. If you sell on any platform, you need one.

Chargeback Protection
When a customer disputes a charge with their credit card company, your refund policy is your first line of defense. Clear terms help you win disputes.

Customer Expectations
Even if it's not legally required for your business type, customers expect to see one before buying. Not having one raises red flags and kills conversions.

The hidden cost of no refund policy

Without a clear policy, customers are more likely to: (1) abandon their cart before checkout, (2) file chargebacks instead of requesting returns, and (3) leave negative reviews about unclear terms. A clear policy actually reduces refund requests by setting expectations upfront.

What to Include

Time Limits for Returns

Clearly state your return window. Don't be vague.

Good examples:

  • "Returns accepted within 30 days of delivery"
  • "Digital products are non-refundable after download"
  • "Subscriptions can be cancelled within 14 days for a full refund"

Bad examples:

  • "Returns accepted at our discretion"
  • "Contact us for return information"
  • "Refunds may be available"

Industry norms to consider:

  • Physical products: 14-30 days is standard
  • Digital products: Often no refunds, or 7-14 days before download
  • SaaS/subscriptions: 7-30 day money-back guarantee is common

Condition Requirements

For physical products, specify what condition items must be in to qualify for a return.

Common requirements:

  • Unopened and unused in original packaging
  • With tags attached
  • Not damaged, worn, or washed
  • With original receipt or proof of purchase

The more specific you are, the fewer disputes you'll have.

Non-Returnable Items

List items that can't be returned for hygiene, safety, or practical reasons:

  • Perishable goods (food, flowers, plants)
  • Personal care items (cosmetics, underwear, earrings)
  • Custom or personalized products
  • Digital downloads after access or download
  • Gift cards or prepaid credits
  • Final sale or clearance items

Don't hide these exceptions in fine print. Put them near the top of your policy.

Refund Method and Timeline

Explain how and when customers get their money back. Be specific about timing.

Good examples:

  • "Refunds processed to original payment method within 5-10 business days after we receive your return"
  • "Store credit issued within 24 hours of return approval"
  • "Shipping costs are non-refundable unless the item was defective or we shipped the wrong item"

Don't promise instant refunds if your payment processor takes 5-10 days to process them. Set realistic expectations.

Return Shipping Responsibility

Who pays for return shipping? This is one of the first questions customers ask.

Common approaches:

  • Customer pays: Standard for change-of-mind returns
  • You pay: Required for defective, damaged, or wrong items
  • Prepaid label: You provide a return label and deduct the cost from the refund

Whatever you choose, state it clearly.

Exchange Options

Do you offer exchanges for different sizes, colors, or products?

Many businesses prefer exchanges over refunds because they retain revenue. If you offer exchanges, make them easy:

  • "Free exchanges for different sizes within 30 days"
  • "Exchanges processed faster than refunds"
  • "Contact us to arrange an exchange before shipping your return"

Refund Policies by Business Type

Physical Product Businesses

Standard approach for e-commerce:

  • 30-day return window from delivery date
  • Items must be unused and in original packaging with tags
  • Customer pays return shipping (unless item is defective or wrong)
  • Refund to original payment method within 5-10 business days after receiving return
  • Free exchanges for size/color within return window

This balances customer-friendliness with protection against abuse.

Digital Products and Downloads

Digital products are trickier because they can't be "returned" after access.

Common approaches:

  • "All sales final after download" (strict but clear)
  • "14-day refund window if product not downloaded or accessed" (more customer-friendly)
  • "Money-back guarantee if product doesn't work as described" (requires verification)

The key is disclosing this clearly before purchase. No surprises.

SaaS and Subscriptions

Subscription businesses typically use one of these models:

  • 14-30 day money-back guarantee for new customers
  • "Cancel anytime, no refunds for partial months" (pay-as-you-go approach)
  • "Annual plans: full refund if cancelled within 30 days"
  • Pro-rated refunds for annual plans (optional but customer-friendly)

Many SaaS companies offer generous money-back guarantees because they're confident in their product. It reduces friction and increases conversions.

Services and Consulting

Service-based businesses need different terms:

  • Deposits are typically non-refundable (compensates for blocked calendar time)
  • Cancellation policy with notice periods (e.g., "Cancel 48 hours before appointment for full refund")
  • Refunds for unused sessions or hours
  • No refunds for completed work

The key is protecting your time while being fair to clients who need to reschedule.

Legal Requirements by Region

EU and UK (Distance Selling Regulations)

If you sell to EU or UK customers, you must comply with strict consumer protection laws:

  • 14-day cooling-off period is mandatory for most online purchases
  • Customers can return items for any reason within 14 days of receipt
  • Exemptions exist for: digital content after download, personalized items, perishables, sealed goods opened for hygiene reasons
  • You must clearly display this right before purchase
  • You can extend the period (30 days, 60 days) but cannot shorten it

This is the law, not optional. If you serve EU customers, your policy must comply.

United States

The US has no federal law requiring refunds for most products:

  • No mandatory return window (except for defective products covered by warranties)
  • You must clearly disclose if you have a "no refunds" policy
  • Some states (California, New York) require disclosure of return policies at point of sale
  • FTC rules require honesty in advertising—if you promise refunds, you must honor them

Just because refunds aren't required doesn't mean you shouldn't offer them. Customers expect them.

Australia (Australian Consumer Law)

Australia has strong consumer protections:

  • Must offer refunds, repairs, or replacements for faulty, damaged, or misrepresented products
  • Cannot have "no refunds" or "store credit only" policies for defective items
  • Change-of-mind returns are optional but must be clearly stated
  • "Consumer guarantees" apply automatically and cannot be waived

Common Mistakes to Avoid

Being Vague
"Refunds at our discretion" frustrates customers and leads to disputes. Be specific about timeframes, conditions, and processes.

Hiding Your Policy
Don't bury it in fine print or on a page nobody can find. Display it clearly before checkout.

Not Following Your Own Policy
Inconsistency leads to disputes, chargebacks, and bad reviews. If your policy says 30 days, honor 30 days.

Making Returns Too Difficult
Requiring customers to jump through hoops leads to negative reviews and chargebacks. Make the process straightforward.

No Policy at All
Payment processors and marketplaces often require one. Operating without a policy puts you at risk.

Writing a Customer-Friendly Policy

Your refund policy should be protective but not hostile. Here's how to strike the balance:

Use Simple Language
Avoid legal jargon. Write for a 6th grade reading level. "Returns accepted within 30 days" is better than "The buyer may seek restitution within a 30-day post-purchase window."

Make It Easy to Find
Link in footer, checkout page, product pages, order confirmation emails, and customer account area.

Offer Store Credit as an Option
Many customers are happy with store credit instead of refunds. It keeps revenue while satisfying customers.

Have an Exception Process
Empowering customer service to make exceptions (within reason) builds loyalty. "Our policy is 30 days, but we'll make an exception for you" turns frustrated customers into fans.

Be Generous Where You Can
Flexible policies often result in more sales and repeat customers. The cost of a few extra refunds is usually less than the cost of lost conversions.

The Zappos effect

Zappos famously offers 365-day returns with free shipping both ways. This isn't just generosity—it's a competitive advantage. Their easy returns policy reduces purchase anxiety and increases conversions. While you don't need to match Zappos, the principle holds: easier returns often mean more sales.

Template Structure

Here's a simple structure that works for most businesses:

  1. Introduction: Brief overview of your commitment to customer satisfaction
  2. Return window: How many days customers have to initiate a return
  3. Eligible items: What can be returned
  4. Non-eligible items: What cannot be returned (and why)
  5. Condition requirements: What condition items must be in
  6. How to start a return: Step-by-step process (email, form, portal, etc.)
  7. Return shipping: Who pays and how to ship items back
  8. Refund method: How customers receive their money
  9. Timeline: When to expect the refund
  10. Exchanges: If and how you handle exchanges
  11. Contact info: How to reach you with questions

This covers everything customers need to know without overwhelming them.

Implementation Checklist

Once you've written your refund policy:

  • Add it to your website footer on every page
  • Link to it from your checkout page (before payment)
  • Include a summary in order confirmation emails
  • Add a link to product pages
  • Train your customer service team on the policy
  • Create internal processes for handling returns
  • Review and update it annually or when your business changes

The Bottom Line

A clear refund policy protects you legally, reduces disputes, and actually increases sales by reducing purchase anxiety.

Don't overcomplicate it. Be specific about timeframes and conditions. Use simple language. Make it easy to find. And follow it consistently.

Your refund policy is part of your customer experience. Get it right, and it becomes a competitive advantage instead of just a legal requirement.