How to Create a Small Business Return Policy

Selling a product to a customer and collecting money isn’t the end of the sales process. You also need to prepare in case customers return goods. To prevent confusion and frustration, you need to have a clear small business return policy in place.

What is a small business return policy?

A small business return policy is a set of rules that lets customers know what to expect if they need to return or exchange a product.

Return policies vary by business. They are influenced by industries and the types of products you sell. The policy acts as a set of guidelines in case customers don’t want what they purchased.

Here are five reasons for returns:

  1. The product is defective or damaged
  2. The customer purchased the wrong item
  3. The customer no longer wants the product
  4. The product did not meet the customer’s expectations
  5. The customer received the product as a gift and doesn’t want it

Having a small business return policy is necessary before you begin selling products. If you have a customer who wants to return a good and you don’t have a policy, you could have a frustrated customer and confused workforce. Avoid inconsistencies by writing down your return policy.

Creating a return policy

Knowing how to write a return policy is an important part of being a small business owner. You need to know what information to include so the return process is easier for you, your employees, and your customers.

Establishing a clear return policy can also help protect your business from return fraud. Some people look for returns as opportunities to make money. One estimate from the National Retail Federation Return Fraud Survey found that businesses across the nation lost $761 billion in returns. Of that number, 10.3% were return frauds, meaning U.S. businesses lost $78 billion in return fraud.

Though there is no standard return policy for small business, you should include information on the following.


First, your policy should mention whether or not the customer needs receipts to make returns or exchanges.

You should give your customers a receipt whenever they purchase from you. A receipt is proof of purchase for customers because they list the products bought, prices, and your business information. That way, you can verify that the purchase was made from your business. This also helps you accurately record a purchase return in your accounting books.

There are a few ways you can incorporate a receipt into your small business return policy:

  • No returns without receipts
  • No exchanges without receipts
  • Returns without receipts are accepted
  • Exchanges without receipts are accepted
  • Returns without receipts will result in store credit

You might consider requiring a receipt to defend your business from fraud. The National Retail Federation (NRF) survey found that returns without receipts made up 15.6% of returns. Of that percentage, 12.8% were return fraud cases.

Some consumers purchase a product from another business and return it to you to make money. Or, they might even shoplift from you and return the product to you to get money.

By requiring a receipt, you can avoid losing money to fraud. Unfortunately, requiring receipts won’t completely prevent return fraud. Select a policy on receipts that matches your business.


Some businesses choose to require identification when customers return products. This lets you identify which customers repeatedly return items in your point of sale (POS) system. Having identification can also help you verify the customer and prevent theft.

Take a look at the following to see how to incorporate an ID into your small business return policy:

  • ID required with receipts
  • ID required without receipts
  • ID required with or without receipts
  • ID is not required


How will you refund customers if they are doing a return or exchange? Your policy might depend on factors like whether the customer has a receipt or not.

These are some ways you might refund customers for the returned item:

  • Even exchange (returned item for a new item)
  • Cash refund
  • Refund on credit/debit card used for purchase
  • Store credit

Deciding how to refund customers is an important part of creating a return policy. Customers know exactly how they will receive their refund before they return the product.


Determine how much time the customer has to return the product. Including this detail will help make sure that you don’t accept outdated or discontinued merchandise.

For example, you could accept products within seven, 14, 30, 60, or 90 days. Some businesses even accept returns beyond 90 days.

You can also choose different timelines for each product you sell. But, make sure customers understand your rules.

Let’s say you sell movies as well as candy and popcorn. Your return policy is 30 days for movies and seven days for edibles.


You might decide that certain items cannot be returned or exchanged. This is especially true for discounted items or items that you had to order for the customer.

Or, maybe you are an online business. Do you cover the cost of return shipping? Do you cover the cost of shipping for an exchanged good? These should be stated in your policy so customers aren’t upset if they have to foot the bill.

Small business return policy tips

Even if you have a small business return policy, there are some issues that can come up. To help returns go smoothly, try the following.

Be consistent with your policy. Make sure you give customers the same treatment, accept the same products, and don’t change up the rules without letting customers know.

Post your policy in clear view of customers and employees. It’s a good idea to put it on the receipt so the customer has a take-home copy of it. And, you might consider setting up a sign with the policy on it by the register. In some states, you must accept refunds if you don’t disclose your policy to customers (e.g., California, Rhode Island, Utah, etc.).

Explain your policy to the customer when they make a purchase. Tell them whether they can return the product, how long they have to return it, if they need a receipt, and any other important information. You can even circle the policy on their receipt and have them initial and agree to it.

Train employees so they know how to handle returns. Your employees should all know your business’s return policy as well as how to do the transactions. You don’t want customers waiting around for employees to figure out returns or exchanges. And, a customer doesn’t want to be told to come back at a different time.

Check out your competitors so you know what their return policies look like. You don’t want to lose out on customers because your competition handles returns and exchanges more effortlessly than your business.

Service refund policy vs. product return policy

Handling product returns isn’t so bad once you create your policy. But, how do you handle service refunds? You can’t take back a service, the time you spent performing it, or (sometimes) the materials used to complete the service.

Take for instance a business that landscapes yards. The business spends four hours mowing the lawn, planting flowers and trees, and mulching. After all that, the customer says they don’t like the finished product.

If you offer services at your small business, your refund policy might be a little different than your product return policy.

You will need to listen to what the customer wants. A customer might have the following problems with services:

  • The service did not fix the problem
  • The customer does not like the service quality
  • The customer wanted a different service performed

For some services, you can perform an additional service so the customer gets what they want. But, sometimes, they want a full refund for the work you did without giving you a chance to fix any mistakes.

Your service refund policy might look like the following:

  • If you don’t love our services, get a 100% refund (within # days)
  • No refunds
  • If you don’t love our services, let us know, and we’ll make it right

Unfortunately, if your service refund policy gives customers the opportunity to receive a 100% refund, you won’t have a returned product like with a product return policy.

You might feel like you spent time, energy, and materials performing a service with nothing in return. But, you could have a customer who respects your policy and is willing to return in the future.

When you accept returns, you need to update your accounting books. Patriot’s online accounting software lets you track your small business’s money with ease. Try it for free today!

This article has been updated from its original publication date of September 21, 2017.

This is not intended as legal advice; for more information, please click here.

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