Tips for drafting your ecommerce return policy

Product returns are an unavoidable part of doing business, especially during the holidays or when ecommerce and catalog sales are involved. In fact, returns are such an integral part of holiday shopping they’ve sparked a new day of recognition in early January: National Returns Day. How smoothly the returns process goes can influence whether a shopper will become a repeat customer or a disgruntled one-timer.

Returning products is often a hassle on both sides of the counter. For consumers it can entail standing in long lines at either the store or post office. For retailers it’s costly, and it may involve unpleasant encounters with unhappy customers in addition to the nuts and bolts of processing the return or exchange.

How COVID-19 is impacting returns — and purchases

The COVID-19 pandemic has exacerbated the returns process, to the extent that consumers may refrain from purchasing items online simply to avoid the possibility of having to deal with returns. According to a survey of more than 1,000 U.S. consumers conducted this spring by Inmar Intelligence:

  • 40% of consumers have held back on purchasing items online since the pandemic began due to returns frustrations
  • 42% of consumers now mail their returns due to COVID-19 
  • 56% of consumers think it's easy to return online purchases, yet 58% prefer to return purchases in a store

Increased sales volume may be one reason ecommerce sellers are currently struggling to effectively manage returns, since higher sales can “have a significant impact” on the returns process: Approximately 63% of consumers now buy more online than usual so as to avoid in-store shopping; and nearly $1 out of $5 spent during the third quarter of 2020 was spent online.

Inmar Intelligence found especially high return rates among ecommerce businesses. An estimated 15 to over 30% of online purchases are returned, while in-store purchases typically have a 10% return rate. The fact that 67% of shoppers check retailers’ returns pages before making an online purchase suggests they’ve learned from experiences that haven’t been positive.

How returns can affect the bottom line

On the flip side, a good returns experience can positively affect sales: According to the survey results, 72% of consumers will make an additional purchase from a retailer with a hassle-free returns process.

There are several ways to create a positive returns experience, including:

A convenient process

Online retailers with ties to a brick-and-mortar store can facilitate returns of online orders by accepting them in store. During the busy returns season (i.e., after the holidays), setting up a special kiosk for online-ordered returns may be worthwhile. An outdoor kiosk could be even better given the pandemic.

For example, Nordstrom Local stores now make it easier for shoppers in parts of California and New York to pick up and return their Nordstrom purchases. The stores carry no inventory for sale but offer online order pickup, gift-wrapping services, returns and exchanges, even alterations.

Retailers with no brick-and-mortar option can streamline the returns process by including a prepaid return shipping label in each shipment (retailers only pay for labels used). This affords retailers more control over the returns process, such as which carriers or services can be used. It also brings peace of mind to consumers: Buyers know they can simply drop the package with the shipper if they want to return or exchange the goods.

Free returns

If having to return an item is usually a disappointment, having to pay to return it can seem like an affront. Yet shipping is costly to businesses, and with return rates spiking it’s becoming more so. The exact cost of returns to retailers is hard to pin down, but in 2019, RSR Research told Vogue Business that retailers lose a third of their revenue to returns.

To recoup some of that loss, some online retailers (33%, according to a 2018 survey) offset the cost of free returns by charging for delivery. Others (20%, according to the same survey) make up the cost of free returns by raising the price of products.

Another option is to provide free returns shipping for some purchases but not others, or only at certain times of year. For example, offering free returns for full-price items but not items on sale, or free returns during the holidays. Whatever the policy, it should be straightforward and clearly communicated, so customers don’t get confused and expect free shipping when it’s not available.

Easy access to information

No matter how returns are handled, transparency is essential. Customers want to know how long it will take for returns or exchanges to process, and how long before their accounts will be credited. The Inmar Intelligence survey found that 89% of consumers want to receive returns status updates via email and/or text. Should a problem arise, they’ll also want to be able to communicate directly with the retailer.

How returns can complicate sales tax compliance

Getting sales tax right on returns and exchanges is critical. Customers will want to see they were refunded the full amount of tax due on returns. With exchanges, they’ll check to see they’re credited or charged the proper difference. And they won’t be the only ones looking: Tax authorities will scrutinize sales tax returns and remittances to ensure they add up as they should when refunds and credits are involved.

Online sellers with customers and an obligation to collect sales tax in multiple states need to understand each state’s policy regarding sales tax, refunds, and exchanges. Unfortunately, sales tax laws and policies differ from state to state.

If a product is returned before the collected sales tax has been remitted to the tax authorities, retailers may be able to simply refund the tax due to the customer. Yet the process can become much more complicated if returns and exchanges are processed after sales tax has been remitted and sales tax returns filed.

In Connecticut, for example, retailers are required to refund sales tax along with the purchase price so long as products are returned within 90 days of the date of purchase; customers must be able to verify the date of purchase (e.g., with a receipt). If the return occurs more than 90 days after the original purchase date, customers are not entitled to a sales tax refund.

Other issues that can complicate sales tax compliance regarding returns and exchanges is whether sales tax is charged on shipping, who pays for the shipping, and so on.

Returns happen. Sales tax happens. Automation can help.

Though they can be minimized, it’s best to accept returns as an unavoidable part of business rather than try to prevent them with high return charges or a cumbersome process. Those techniques can backfire and alienate customers.

Similarly, it helps to accept sales tax collection, remittance, and filing as an unavoidable part of doing business and do what you can to simplify. Automating sales tax compliance can help.

Learn more about returns and other issues facing ecommerce sellers.

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