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Consumers have certain rights given to them by the law. As a business, you have to honour those rights to sell your goods and services. Your refunds policy is a good way of upholding these rights. You can also provide extra services for your customers on top of those rights, which you can outline in your refund policy. Having an effective refund or returns policy is about balancing good customer service and your business interests. This article explains what could go into your refund policy, including what you need to ensure you are honouring your obligations under consumer law.

Why Have a Refund Policy?

It is part of normal business for New Zealand shops to need to deal with returns from time to time, and sometimes on a daily basis if the volume of sales is sufficiently high. The more returns you need to manage, the more important it is to standardise practices and policies in your business. This makes it easier for your staff to know how to handle different situations consistently, and is more predictable for customers who can have a clear understanding of what they can expect when they are returning a product. Additionally, it makes it easier to ensure that your shop is in line with your obligations under the Consumer Guarantees Act, which provides legal protection to consumers who purchase faulty products or services. 

You should have a returns policy as soon as your shop starts dealing with several returns. Having a bespoke, customer-specific approach may work initially but will become extremely time-consuming over time, and may lead to accusations that your business is not approaching the same issue consistently. 

Qualifying for a Refund Under Your Refund Policy

Under consumer law, a customer is entitled to a repair, replacement or refund if the product:

  • is faulty or defective;
  • differs from its description or any representations you made;
  • does not match any samples or demonstrations you give;
  • is not fit for purpose, or cannot be made fit for purpose within a reasonable time;
  • is delivered late or never arrives, or the product is damaged in transit; or
  • is sold unlawfully.

This applies to products that you sell for household or personal use. If the customer comes to you with any of these issues, you must give them a remedy once you investigate the problem. If the issue is minor, you can choose whether you repair, replace, or refund the item. But if it is a serious issue, the customer gets to choose. Importantly, you cannot charge them anything for the remedy that they choose. 

A problem is serious when:

  • the product is significantly different from its description;
  • if a reasonable customer knew about the fault at purchase, they would not have bought the product;
  • the product is not fit for purpose, or cannot reasonably be made fit for purpose; or
  • the product is unsafe.

For example, if you sold a customer house paint telling them that they could use it to paint a car, this would count as a serious problem.

Under consumer law, you do not have to give customers a refund if they change their mind. However, you can decide to offer refunds anyway, to deliver strong customer service. In your refunds policy, you should outline all of the reasons a customer can request a refund, including those imposed by consumer law and your own.

Applying for a Refund Under Your Refund Policy

Your refund policy should include terms outlining how a customer can apply for a refund, whether through your website or in-store. 

This should also include any time limits on applying for a refund. You cannot set an unreasonable time limit, but customers cannot also expect a refund after an unreasonable amount of time. Many businesses allow a limit of 30 days for applying for a refund. 

You should also specify whether a customer needs to provide proof of purchase, such as a receipt or bank statement. If your business keeps logs of customer purchases through an account, you can use this as proof of purchase as well. 

It is a good idea to specify what kind of refund customers are eligible for, whether it be: 

  • store credit; or 
  • monetary payment.

You should also take steps to make the returns policy as visible as you can. You should display the policy prominently, including on your website, at the checkout, and on an online purchase confirmation page. 

Other Options to Include in Your Refund Policy

When customers request a refund for a minor issue, your business gets to decide what the most suitable remedy is. You must do so promptly and professionally. 

Under your consumer law obligations, you need to have the ability to repair the items you sell to a certain extent. You can satisfy this by:

  • fixing items to an appropriate standard yourself;
  • having a repair contract with your manufacturer; or
  • having an agreement with a trusted repairer.

Delivery

Your returns policy should include the process for customers to return items for which they are requesting a refund. This could be by:

  • postal delivery; or
  • dropping it in one of your stores. 

You may decide that products need to be in their original packaging. You could also specify that you will not cover any damage that occurs after the original delivery.

Customers are responsible for making sure that they return products to you, safely and without any further damage. You are not obliged to cover shipping costs or facilitate this returns process, but you can do so if you wish. 

Customers may be more likely to do business with a company that provides free returns postage, such as a special label they print out. However, this can be a costly endeavour. You should decide what best suits your business.

Key Takeaways

You can decide what your business’ returns policy looks like, as long as you make sure you fulfil your consumer law obligations. They provide the legal minimum to protect consumers’ rights, but you can add more if you wish. You should make sure your refund policy is easy to find and easy to read as well. If you would like more information or help with your returns policy contact LegalVision’s New Zealand business lawyers on 0800 005 570 or fill out the form on this page.

FAQs

Can my business refuse to give a refund?

You cannot outright refuse to remedy a customer’s complaint if the product is faulty or goes against one of the consumer guarantees laid down by NZ law. But if it is a minor problem, you can choose to replace or repair the product instead.

How do you write a refund policy?

Your refund policy should outline when customers are eligible for a refund and how they can apply for one. You should also include alternatives to a refund and specify how customers can return items.

Do you need a receipt for a refund?

Generally yes, you do need a receipt for a refund. Customers need to provide some proof of purchase so that businesses can confirm whether they actually sold that item. Some businesses may keep customer sales records if you have an account with them.

When do I need to give a refund?

You need to give a refund if a customer returned a product because it had a serious problem. The product may be completely different from its description, not fit for purpose or unsafe. Under consumer law, the customer then gets to choose what remedy they get, and if they want a refund then you have to give it to them.

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