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Covid-19 Resources

A Guide to Mutually Beneficial Refund and Cancellation Policies for Small Businesses

May 1, 2020
Written by Nextdoor Editorial Team
May 1, 2020 | Written by Nextdoor Editorial Team

In the best of times, refunds and cancellations are part and parcel of doing business. But, in the midst of a black swan event like COVID-19, your business may be overwhelmed by the sheer number of refund or cancellation requests. Creating and introducing a refund or cancellation policy that is fair to both sides is not easy. You have to walk a fine line that balances both the needs of your small business and your customer. 

So, how do you turn a refund and cancellation incident into a situation that’s mutually beneficial for all, especially in an unprecedented pandemic like this? 

Building customer relationships is extremely important, no matter what the circumstance is. Here are some tips and tricks you can use to make sure that both parties walk away from any exchange feeling like winners. 


A Guide to Mutually Beneficial Refund and Cancellation Policies for Small Businesses 

There’s no universal guideline that will apply to this process. Your refund or cancellation policy must be tailored to your business. What works for a travel booking company may not work for an eCommerce retailer. Therefore, you’ll have to take the time to write a business plan that is uniquely your own. We can’t help with that, but we can provide you with some tips to consider for both the policy and for interacting with customers. 

Tips to Keep in Mind to Make a Great Return or Cancellation Policy  

The following tips will ensure that your customers, business suppliers, and partners have a clear understanding of your policy:

Learning how to engage customers on social media shows them that you are confident in your product or service, and that you stand by it. 

  • Don’t copy and paste – Refund and cancellations are never one-size-fits-all. What works for another business—even one closely related to your own—might not work for you. This is not a place to cut corners. Instead, make the page clear, concise, and enjoyable to read. 
  • Keep it simple – The language you use in your policies should be easy for any customer to comprehend. They shouldn’t be forced to comb through the policy in order to find the relevant sections. So, be sure to hit the following beats:
    • Let them know what to expect from the process
    • Give them a timeline
    • Answer all of the relevant questions

By sticking to these steps, you’ll reduce the likelihood of the customer being confused, blindsided, or upset when they try to cancel or ask for a refund.  

Negative Refund or Cancellation Experiences Can Damage Your Business 

The way you handle refunds and cancellations can have a significant impact on the way a customer views your small business. If they leave with a bad taste in their mouth, they’ll remember. And in today’s uber competitive world, just one negative experience may be enough to lose a customer forever. According to Forbes,

Marketing research has discovered that it takes 12 positive experiences to repair the damage caused by a single unresolved negative one.

Losing a single customer is bad. But what many businesses fail to account for is that it doesn’t stop there. If a customer encounters a business that made a mess of a refund or cancellation policy, they’ll be sure to tell others about it—whether online or in person. As word spreads, the connotation of “poor customer service” could stick. That type of reputation is hard to shake.    

A 2019 UPS Pulse Study found that retailers—especially in the world of eCommerce—need to offer comprehensive cancellation and return services. They concluded: 

  • “73% of shoppers surveyed said the overall returns experience impacts their likelihood to purchase from a retailer again.
  • 68% of survey respondents agree that the returns experience shapes their overall perceptions of a retailer.
  • 42% said free return shipping contributes most to a positive returns experience.
  • Top elements of a great returns experience include proactive communications, flexible return options, and transparency.”

Whether you run a gym, sell clothes online, or own a restaurant, the story stays the same—poor customer experiences can have an outsized impact on your small business. 

Treat the Customer Right

Your customers and business partners might expect a bad experience (or even a fight) when they request a refund or cancel a booking. This combative feeling is tenfold if they’ve been dissatisfied with the product or service they received.

So, how do you diffuse this situation? 

With understanding, patience, and kindness. Now, you might roll your eyes at first, but put yourself in their shoes. Just think about how caught off guard a customer would be if they were planning for confrontation only to be met with respect. By shifting the paradigm, by altering the relationship, you soften their defenses and make them more agreeable towards finding common ground. 

To help you with this, we’ll run you through a to-do list to keep in mind when dealing with unsatisfied customers or business suppliers.

How to Interact with Customers Tactfully

Both you and your employees should remember these tips for any future customer refund or cancellation request:

  • Take pause and listen – Even if a customer comes out swinging, it’s important that you don’t respond in kind. It’s natural to feel angry or frustrated when a customer speaks negatively about your small business, but being defensive won’t help the situation. Especially in the midst of COVID-19, it’s important to remember that people may be panicked about their financial situation, health, and the world itself. Don’t add fuel to the fire. Instead, breathe. That way your emotions won’t cloud your judgement.
  • Follow up with questions – A refund or cancellation presents a chance for you to gain insights about what your small business is doing right or wrong. Obviously, with coronavirus you may have a deluge of cancellations or refund requests that are tied to this event; however, it’s still worth finding out whether or not there was something you could’ve done differently. So, ask questions like:
    • What was the purpose of the refund?
    • What did they want from your product or service? 
    • Why didn’t the product or service meet their expectations? 

Don’t assume. Dig for more information. It could just be a misunderstanding. It could be something that’s fixable. You don’t know unless you ask. Also, by asking poignant questions, you demonstrate to customers that you view them as a person and not a dollar sign. 

  • Provide an alternative – Once your fact-finding mission is finished, you’ll have a clearer picture of what the customer or supplier wants. Along the way, you may find alternatives to simply returning their money. Perhaps they’ll be content with adjustments to service, discounts or deals, vouchers, rescheduling, or better instructions on how to use the product properly? You won’t know unless you offer alternative solutions to their problem. 
  • Find a middle ground – At times, it may be better to take a small loss than a big one. For instance, if you run a service like wedding catering, your policy may state there are no cancellations. But with COVID-19, you may need to relax those rules and see if arrangements can be made that leave both you and your customer satisfied.   
  • Don’t make them jump through hoops – If the customer is dead set on getting their money back, it’s hard to emphasize enough how important it is that you make this process simple and transparent. If they already have a negative opinion, it will only be worsened by a bad return experience. 

Put simply, the return or cancellation process is not the place to make your last stand. Of course, there will be some customers who take advantage of your cancellation or refund policy (especially during COVID-19). But that’s what your detailed return policy was made for.

Dealing with COVID-19 

Service providers are getting hit especially hard by coronavirus. People are cancelling trips and activities left and right, but you need to remember that many of those cancellations don’t have anything to do with your small business. It’s just that everything is shut down for the foreseeable future. So, consider some alternative strategies, including:

  • Partner with other local businesses to create a new product or service, or to enhance your own. If you’re looking for ways to connect, Nextdoor is the neighborhood hub that local businesses rely on to meet their neighbors. 
  • See if the customer is amenable to rescheduling to a later date, especially when the situation is under control and daily life may be more normal.
  • Focus on your existing customers who haven’t canceled by providing them with fantastic service. This will help build customer loyalty.
  • Look for ways to increase your value by adding more services, discounts, or options. 

This situation is extraordinary. Because of this, you may have to take radical measures or accommodate even your most rebellious of customers.


You Win, They Win

In times like these, we have to band together. It can be hard learning how to navigate business during COVID-19, and you know that customers and suppliers will likely ask for refunds at a higher rate than they usually would. So, while it’s important to have a comprehensive refund and cancellation policy in place, it’s vital you seek mutually beneficial outcomes for both your customers and your small business. 

When you find a middle ground, when you create win-win scenarios, you set up your small business for long-term success.


If you are a local business, claim your free Business Page to get started on Nextdoor. Resources on how to use Nextdoor to stay connected with your local customers during coronavirus, pertinent news affecting businesses, and more, are available in our Small Business Guide for Coronavirus Relief.

Claim your free Business Page to get started on Nextdoor. For resources on how to use Nextdoor to stay connected with your local customers, pertinent news affecting business, and more, follow us at @nextdoorbusiness on Facebook

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