Set Your Return Policy Before it’s too Late

raft artist Pam Corwin of Paper Scissors Rock in Olympia, Wash., had been selling her work to a California store for many years when, without warning, a package arrived with 46 of Corwin’s whimsical clocks and a request for a refund of $570. In 22 years of business, it was her first request for a refund — not simply an exchange.

Adding to the confusion was the fact that the returned merchandise wasn’t from one particular order but instead was spread over five orders and much of it was purchased over a year earlier.
Unsure how to handle the situation, Corwin considered flatly refusing to refund the money on the basis that a sale is a sale and she had no legal obligation to refund the money. But she suspected there was more to the situation than the returned clocks.

Instead of shipping the clocks back and announcing, “All sales are final,” Corwin decided to write the storeowner a note. She wouldn’t provide a cash refund, she said, but offered credit for other merchandise. The storeowner contacted her, apologized, and the dispute was resolved quietly.

“One thing I learned,” says Corwin, “was that my return policy needed clarifying. I’ve always offered a lifetime warranty for my clock mechanisms and I’ve advised people that damaged merchandise must be reported within seven days. But I realized I needed to create a clear policy on returns and to make it available to all buyers.”

As Corwin learned, even if you don’t enforce your legal rights, it’s important to know them. Here are summaries of some of the rules regarding returns.

Illustration by Art Glazer

Display your return policy prominently.

If you want to provide refunds and impose conditions on when merchandise can be returned, you should make your return and refund policy conspicuous to the buyer before the sale. Your state law may require this type of posting. But even if it’s not the law in your state, it’s a good practice in the event there is ever a dispute. If you’re taking orders at a show, for example, place a sign near where you write your invoices and include the policy on the invoice, as well.

If selling directly or taking wholesale orders online, make the policy conspicuous at your Web site before checkout.

What constitutes a prominent display?

A prominent display means that the return information is conspicuous and easily noticed. New York law, for example, sets guidelines for stores and any one of these displays will suffice:
• on signs at each cash register and sales counter;
• at each public entrance;
• on tags attached to each item sold under that policy;
• on the retailer’s order forms, if any;
• if you sell via a Web site, post the policy (or a conspicuous “Return Policy” hyper-link) so that it is visible before the buyer completes the sale.

Many merchants include the policy on the sales receipt but this should not be the only way that the buyer learns about it. The key to enforcing your policy is to demonstrate that it was observable before the purchase.

What kind of conditions can you impose?

Typical conditions for return might require the customer to bring back the merchandise within a certain number of days, or that the merchandise must be unused, or that the customer must submit a receipt or other proof of purchase.

Or, if sending items back by mail or online, that the return must be authorized. You can require that a buyer who exchanges for a less expensive item must spend the remainder of the money in your store.

Are restocking fees legal?

Yes, if they are conspicuously displayed prior to purchase so that they become part of the sales contract. (Note, Hawaii, does not permit restocking fees except in certain instances.)

Although legal, a restocking fee must be reasonable and bear some relation to the actual expense involved in restocking — commonly 10-15 percent of the sale price. A court will not enforce an outrageous restocking fee — say 40 percent — if it seems more like a penalty than a business expense.

What does it mean to offer a money-back guarantee?

Under the law, a money-back guarantee means that you will return the full purchase price upon return of the goods.

What about consigned goods?

Galleries and stores that sell consigned or special orders should never offer returns for those goods unless they’re flawed; all sales of such items should be final.

When do you have to accept returns?

There are two situations when you will always have to accept returns:
• If there has been a significant breach of the sales contract, for example, your crafts goods were defective or seriously flawed, or
• If you had an agreement with the customer allowing a refund.

-Richard Stim is an attorney and author of “Your Crafts Business: A Legal Guide,” published by Nolo (www.nolo.com).