Refunds, returns and consumer guarantees for online stores

Refunds are where the dropshipping model meets reality. Products arrive damaged, don't match their photos, stop working, or simply aren't what the customer expected. How you handle these moments decides whether customers come back, leave a bad review or complain to a regulator.

In Australia, your obligations are set by the consumer guarantees in the Australian Consumer Law (ACL). They apply automatically and can't be excluded by your terms. This guide explains the guarantees, the difference between major and minor problems, change-of-mind policies, and how to write a refund policy that is fair and legal. It is general information based on ACCC guidance, not legal advice.

The consumer guarantees

The ACCC explains that when a consumer buys goods, the business guarantees, among other things, that the goods:

• are of acceptable quality: safe, durable, free from defects, acceptable in appearance and finish, and fit for their usual purposes;
• are fit for any disclosed purpose you were told about or that you said they would be fit for;
• match their description, including your product listing and photos;
• match any sample or demonstration model;
• come with clear title, without hidden debts or charges;
• come with any extra promises you made, such as an express warranty.

The guarantees generally apply to goods costing up to $100,000, or more if the goods are normally bought for personal, domestic or household use. They apply whether you sell from your own store or a marketplace, and whether the goods ship from Australia or overseas.

You are responsible, not your supplier

In dropshipping, customers sometimes get told to "contact the supplier" or "return it to the warehouse overseas". That's a mistake. The consumer can seek a remedy from the business that sold them the goods. You can't push your obligations onto your supplier, although you may be able to recover costs from them under your agreement.

Major and minor problems

The remedy depends on whether the problem is major or minor.

Major problems

The ACCC says a problem is major when, for example:

• a reasonable consumer wouldn't have bought the product if they had known about the problem;
• the product is significantly different from its description, sample or demonstration model;
• the product is substantially unfit for its normal purpose, or for a purpose the consumer told you about, and can't easily be fixed within a reasonable time;
• the product is unsafe.

For a major problem, the customer chooses a refund or a replacement (or, in some cases, compensation for the drop in value).

Minor problems

If the problem is minor and can be fixed, you can choose to offer a repair, a replacement or a refund. If you don't fix a minor problem within a reasonable time, or refuse to, the customer may be able to get it fixed elsewhere and ask you to pay reasonable costs, or reject the product and get a refund.

Change of mind

The ACCC says you don't have to give a refund when a customer simply changes their mind, for example if they choose the wrong size or colour, or find it cheaper elsewhere. Many stores offer a change-of-mind policy anyway to build trust. If you do:

• state the conditions clearly, such as a time limit and the condition of the item;
• say who pays return shipping;
• honour the policy as written.

For overseas-shipped products, change-of-mind returns can be costly. Be clear about the process and costs before customers buy.

What you must not say

The ACCC says signs or statements like the following are illegal, because they misrepresent consumers' rights:

• "No refunds."
• "No refunds on sale items."
• "Exchange or credit note only for return of sale items."
• "Faulty goods must be returned to the supplier."

You can say you don't offer refunds for change of mind, as long as it's clear that this doesn't affect the consumer guarantees.

Proof of purchase and packaging

Customers don't need the original packaging to get a remedy, according to the ACCC. They may need proof of purchase, which can include a receipt, order confirmation email, bank statement or other record. For online stores, your order records usually provide this.

Return costs

If returning a product involves a significant cost to the customer, the ACCC says the business must collect the product at its own expense. For small items, you'll usually provide a return label or reimburse reasonable postage when the problem is covered by the guarantees.

Some dropshippers handle low-value faulty items by refunding or replacing without requiring a return, because return shipping can cost more than the item. Decide case by case and record what you did.

Warranties against defects

If you offer an extra warranty, such as "12 months' warranty", it adds to the consumer guarantees rather than replacing them. The ACCC says written warranties against defects must include mandatory text explaining that goods come with guarantees that can't be excluded under the ACL. Check the ACCC's warranty page for the exact wording.

Writing your refund policy

A good refund policy is short, clear and accurate. Include:

1. How to contact you about a problem, and how fast you respond.
2. What happens for faulty or incorrect items, in line with the consumer guarantees.
3. Your change-of-mind policy, if you offer one, with conditions.
4. Return instructions, including the return address (Australian, if possible) and who pays.
5. Refund timing and method, usually to the original payment method.
6. A statement that the policy doesn't limit ACL rights.

Handling refund requests well

• Respond quickly and politely, ideally within one business day.
• Ask for photos of damage or faults, which also help with supplier claims.
• Fix it first, argue with the supplier later. The customer shouldn't wait while you negotiate.
• Track reasons for every refund, so you can spot problem products and suppliers.
• Build a refund allowance into your pricing. Our margin calculator includes one.

Key points

The consumer guarantees apply automatically to the goods you sell, and customers can seek a remedy from you, not your supplier. For major problems the customer chooses a refund or replacement; for minor problems you can choose to repair, replace or refund. You don't have to offer change-of-mind refunds, but you can't say "no refunds". Customers don't need the original packaging, and you may need to cover significant return costs. Write a clear policy and handle requests quickly.

Related guides

Read delivery times and shipping promises, product safety and banned products and what dropshipping is.