Who is the most important person in any business? If you’re weighing up the skills of every employee, you might be looking in the wrong direction. In reality, you could say that the most essential person in a business is the customer. Without customers, a business won’t exist or thrive, so businesses go above and beyond to try and keep clients satisfied.
However, even the most dedicated businesses do not enjoy a permanent honeymoon scenario. It is inevitable that they will encounter unhappy customers at some point, including those who want their money back.
It’s easy to understand why this scenario is tough for businesses: you’ve already provided a service in return for payment, and now you’re going to end up out of pocket. But properly responding to a refund request is an important test of your customer service abilities.
The best way to handle a refund request from a customer is to follow these steps:
- Consider your legal rights and the customer’s
- Consult your refund policy, if you have one
- Engage with the customer and use de-escalation tactics
- Decide to approve a refund or acceptable compromise
- Inform the customer of your decision and negotiate a solution
Handled properly, there’s still a chance to leave a positive impression on the customer, whether you can heal the relationship or just mitigate the damage.
This article explores the best way to handle an unhappy customer who’s demanding a refund. It also explains your rights as a business and the rights of a customer, enabling you to find that crucial middle ground.
Step One: Know Your Rights
Do I Have to Give a Customer a Refund in Australia?
In Australia, whether you’re legally required to refund a customer will depend on the reason behind the request. In some circumstances, businesses have a legal obligation to give a refund – but unless it’s one of those scenarios identified by consumer law, the decision is up to you (or your organisation’s refund policy).
Why do customers ask for a refund even if you’ve given them your best effort? Reasons customers ask for their money back include:
- The customer is dissatisfied with the product or service
- The product or service they purchased is defective
- The customer did not receive their product or service on time
- The customer received the wrong product or service
- customer made a mistake and asked for the wrong product or service
Not all of these situations are treated the same way legally, nor should you approach them all with the same tactics. Naturally, you want to do the best you can to keep customers happy, but there needs to be a balance between your interest and the customer’s.
Let’s start with the basics. Businesses may have an official refund policy – it’s a good idea to have one and an even better idea to stick to it. However, customers often expect a certain amount of ‘goodwill’ above and beyond what’s strictly required.
A refund policy must also follow the guidelines set by Australian consumer law. Read on to find out what’s legally required.
When are Customers Entitled to a Refund in Australia?
Under Australian Consumer Law, any brand-new product or service should not be defective (and shouldn’t become defective in a short period of time). If the product or service does have a fault, businesses may be legally obligated to give a refund.
Australia Consumer Law says that a customer is entitled to a refund only if all the conditions below are met:
- The price of the product or service is less than $40,000 for business use, or over $40,000 only for personal or domestic use.
- The customer has proof of purchase such as an official receipt, tax invoice, or credit card statement.
- The product or service has violated one (or several) consumer guarantees as described below.
- There’s a major problem with the product or service. A major problem is considered to be any of the following:
- the actual product or service is different from the description or sample
- the product or service fails to do what it’s meant to
- the product or service is unsafe to use
- there’s an issue and the customer would not have made the purchase if they’d known about it
- the product or service has a minor problem, but it can’t be fixed within a reasonable time
If staff informed the customer ahead of time that the product or service is defective but the customer decides to purchase it anyway, then the customer has accepted the goods in current condition. This means they aren’t entitled to get their money back.
This can be important when it comes to services – if a customer insists on a job being done against the professional’s advice and they’re aware the results may be unsuitable, this affects their entitlement to a refund.
A product or service covered under a warranty is often replaced rather than refunded. However, a customer has the right to insist on a refund if the product or service is defective.
What are Customer Guarantees?
If you are running a business, you need to ensure that your products and services comply with a set of consumer guarantees. If your products or services fail to comply with one or several of these guarantees, the customer is entitled to a refund.
- be of acceptable quality
- do what they’re intended to do and meet all descriptions and promises given
- be fit for purposes the business was aware of prior to the sale
- not have any extra debts or charges attached
- have spare parts and repair options available for a reasonable length of time
In addition to the above, services must also:
- be provided with acceptable care, skill and knowledge
- be provided doing whatever’s necessary to prevent loss or damage
- be delivered within a reasonable time frame if there’s no set completion date
All relevant consumer guarantees apply for product-and-service bundles or services with physical components (eg. construction and trade skills).
You can find out more about Consumer Guarantees on the ACCC website.
When is a Customer Not Entitled to a Refund in Australia?
Reading the conditions above, it may be that the complaining customer doesn’t have the legal right to a refund. However, that doesn’t stop many people from insisting on their money back, regardless.
Fortunately, there are policies in place that keep customers from abusing your business. A customer isn’t legally entitled to a refund if:
- The customer does not have proof of purchase
- The customer obtained what he asked for but changed his mind for any reason (e.g., he found a cheaper alternative or he decided he didn’t like what he purchased)
- The customer misused the product or service and it caused a fault
- The customer was made aware of faults but decided to purchase it anyway
- The customer had maintenance done by someone else against the advice of your business
- The customer asks for a service to be done in a way that’s is against your business’s advice or policy
- The customer asks for a service without being clear about they want they want
In many cases, you also have the option to offer a replacement or repair a faulty product or service purchased by a customer.
What can Customers Do if I Refuse a Refund in Australia?
It’s important to note that Australian businesses are not permitted to have a “no refund” policy. In fact, you are breaking the ACL if you will not provide a refund when unable to meet a consumer guarantee.
There are serious and often expensive legal repercussions if you refuse to honor a customer refund request when such a request is clearly warranted. An unhappy customer can do the following:
- Make a complaint with a business owner, management or franchisor
- Forward their complaint to agencies such as
- Your state and territory consumer protection agency
- Your industry’s ombudsman
- Your state and territory’s small claims tribunals
- Ask for assistance from the Australian Competition and Consumer Commission (ACCC) to help them resolve their issue
- Take legal action
Finally, a customer can share their experience on social media, write about it on review sites, or tell their friends about it. All of these can wreak havoc on your business, damaging your reputation and creating negative perceptions in the minds of your would-be customers.
Step Two: Check Your Refund Policy (if you have one)
There is a wise old saying: “An ounce of prevention is better than a pound of cure.” Yes, it’s cliché, but it’s still the best course of action when you’re going into business.
All businesses want to avoid refunds as much as possible. If you share the same sentiment, then your best bet would be to make your refund policy clear, concise, and detailed. If you don’t have a refund policy, it’s highly recommended that you create one.
A refund policy explains the circumstances when your business is willing to give a refund and the times that it isn’t. It also guides customers on how to request a refund and what proof they’ll need to ask for one.
Step Three: Responding to a Refund Request
A customer refund request is often a response from a dissatisfied customer. Knowing this in mind, you need to treat it as a customer service issue first and foremost. Here’s how to deal with a customer who wants a refund.
Start with the HEAT model, recommended by the Customer Service Institute of Australia. The HEAT customer service acronym is a way to de-escalate the situation, diffuse the customer’s anger, and transform a negative experience into a positive one.
H – ear the customer out
Let the customer vent their frustration, disappointment, or anger first. The key is to listen without interrupting or leaping to your own defence, even if it’s difficult. There’s a two-fold benefit here: the customer lets off steam and you can gather all the information you need to know about the problem. After having a chance to vent, the customer will be more willing to listen to you and find a compromise.
E – mpathise with the customer
In times of emotional stress, having someone put themselves in your shoes can be a very validating experience. That’s the feeling we want to give customers when we tell them we understand their plight. It’s good to express empathy by saying things like, “I understand where you’re coming from. I know you had a very specific vision for your landscaping project and you haven’t received the result you hoped for, so if I were in your position, I’d be disappointed too.”
A – pologise, Ask questions & offer Alternatives
Saying sorry for the inconvenience is always a good acknowledgement. Even if you’re not at fault, in a professional setting, conveying an apology always puts the customer at ease. Avoid criticising coworkers or the business as a whole, though, even if they are at fault. Keep the focus on the customer’s feelings and what you’ll do to make the situation right.
T – ake action (or ownership)
Saying sorry isn’t enough: you need to do something to put things right. By this point, you should have plenty of information about the problem and you can start working out a solution. This may mean offering a solution straight away or taking responsibility for following up on the problem personally.
Here are our top tips for handling a customer refund request effectively:
- Treat the matter with urgency. Remember that the customer isn’t happy with the situation, and you don’t want to fan the flames of their anger for too long. Show you care about their experience by fixing the problem quickly.
- Check the facts thoroughly. Study your customer records and any documentation you have. You may need to check invoices and booking records, look at photos of the job site, and speak to any employees who were involved in carrying out the work.
- When asking a customer for information, it’s better to ask open-ended questions rather than yes or no questions. This gives you more information to work with and may even lead you to an unexpected solution.
- Review and consult your company’s refund policy (if you have one) to guide your actions.
- As much as possible, avoid processing the refund by phone. Arrange to meet up with the customer in person whenever possible. If this is impossible, arrange a virtual meeting. This makes the process more personal and will assure the customer that you’re taking the matter seriously.
- If it takes time to assess the situation, investigate the issue or process a refund, be sure to keep the customer in the loop. Avoid escalating the situation and adding tension to the situation by leaving the customer in the lurch. Set realistic timeframes and ensure you stick to your word as much as possible.
- Once a refund has been issued, ask the customer for feedback. This should give you additional insight into what you need to do to avoid the situation recurring. It’s also an additional step you can take to show you’re trying to learn and improve.
Step Four: Refund or No Refund?
When a customer asks for a refund, should you give them what they’re looking for? There’s a fine line that you need to tread. Process a refund and your revenue will take a hit, leaving you out of pocket for labour and materials. Deny a refund and you lose a customer, with the potential to impact your business long-term.
If the scenario doesn’t require a refund under Australian Consumer Law, it’s ultimately your call whether to issue a refund. However, you need to make sure if the refund is indeed warranted. Here are some questions you need to ask yourself:
- Does the customer have the necessary proof? This proof includes the faulty item itself, photos, receipts or statements, invoices, and more.
- Analyze the customer complaint. Is a refund really necessary? Or is a repair or replacement a more viable option? Can you offer other options such as a voucher?
- Refer to your business’s refund policy. Does the customer’s refund request satisfy the guidelines?
- Based on your business’s finances, your business’s inventory and other factors, can you afford a refund? How much will this impact your business?
- If you agree to refund the customer, would you be able to fulfil this request consistently if another customer uses the same approach?
By asking the right questions and understanding the problem from both perspectives, you’ll be able to come up with a strategy to handle a customer refund request without compromising your business.
Step Five: Resolving A Refund Request
H3: How to (Politely) Say “No Refunds”
Not all situations warrant a refund. There are times you need to look at your business, stand your ground, and say no to an irate customer. The thing is, you can do this without further upsetting the customer.
- Use a courteous but firm tone. Acknowledge the request for a refund, then let them know the actions that have been taken.
Example: “I have personally looked into the situation regarding your request” or “I brought this up with our manager where we reviewed the terms of your contract.”
- Be apologetic but be clear that the customer is not eligible for a refund. Most importantly, always give a clear reason why your business declined the refund. It’s better to cite a specific (and consistent) policy to justify your decision.
Example: “We’re sorry to hear you’re unhappy with the appearance of your new turf. However, after reviewing your issue, we’ve decided not to issue a refund. The care instructions we provided clearly state that you need to stick to a strict watering schedule for two weeks after installation. Based on your explanation, you didn’t water the turf as required, which invalidates our warranty.”
- Be sure to let the customer know you appreciate their business. Consider offering them a product or service of value as a gesture of goodwill.
Example: “While we cannot provide you with a refund at this time, we do appreciate your business. We would like to offer a 20% discount on your next landscaping service with us.”
Do remember, however, that having an official “no refunds” policy is a no-no as per Australian Consumer Law. You’ll need to have a clear and legal reason why the customer isn’t eligible for a refund.
Refund Alternatives: How to Compensate An Unhappy Customer
Are refunds the only way to satisfy an unhappy customer? Of course not. As much as possible, you want to keep the money you’ve earned on the books and avoid making a loss on the job.
As a compromise, you can offer some other alternatives to appease a complaining customer:
- For minor defects and faults, you can offer a free repair service. In fact, returning and resolving the issue is a must when it comes to handling customer complaints.
- For major defects and faults, you can replace the item with a new, identical one, or provide an upgrade to a more expensive item at no additional cost. For instance, replacing a poorly performing shower head with a deluxe version without charging the customer.
- Offer a complimentary product or service. For example, if a customer is unhappy with his regular dog wash, you can offer a free nail clip or ear trim to compensate them.
- Offer a discount on the customer’s next service. This is a great way to turn a complaint into a likely repeat client and gives you another chance to make the customer happy.
These are just some of the things that you can offer to the customer in lieu of a refund. Consider what kind of unique value your business can provide – whether that’s extra loyalty points, an extended warranty, or waiving part of the bill (eg. deducting the call out fee).
Giving a partial refund can also be a reasonable compromise – one that may still allow you to cover your costs on a job you’ve already performed.
What Are the Key Reasons for Customer Dissatisfaction?
There are many reasons that can make a customer frustrated, disappointed, or downright angry at your business. Some common reasons for customer complaints include:
- Poor quality products and services
- Inaccurate or false product descriptions and assurances
- The product doesn’t work as expected, promised or assumed
- Your business wasn’t able to deliver on its promises
- Unexpected discoveries about products, fees and policies
- Poor customer service and lack of caring
- Poor communication between them and your business
Is Giving a Refund to a Dissatisfied Customer an Admission of Liability?
In itself, giving a refund isn’t an admission of liability or negligence, and is not proof that you’ve done something wrong. When providing a refund, you have the opportunity to clarify it’s a ‘gesture of goodwill’ and part of your commitment to customer satisfaction.
If the situation is serious and you believe you’re at risk of legal action, you should definitely consult a legal professional before making any decisions.
What does the acronym HEAT stand for in customer service?
The HEAT model in customer service is a strategic approach to handling complaints. The acronym HEAT stands for Hear them out; Empathise; Apologise, Ask Questions & offer Alternatives; Take Action (or ownership).