Friday, May 16, 2014

Handling Customer Refund Requests

Irate customer complaining on phone.
Irate, dissatisfied customers often request refunds.
I recently was asked this question by a business owner that had been operating relatively loosely (in terms of contracts and documentation:
Question: How do you handle customer refund requests, especially when a deposit is involved?

Here is my detailed response:

Any contract that you offer a customer or client must clearly state the terms, if any, for return of a deposit. The contract must clearly spell out the performance level / service level your company will provide. The contract must specify these levels directly in the main contract and can reference these levels in any proposal or quote you submit. When you are NOT very clear about what your customer should expect from your company, you leave far too much open to interpretation. This increases the risk your customers will not have the same interpretation as you. If your contracts do not currently include this information, you must modify your contracts immediately.

Service Levels and Attorneys

If you are unsure what type of terms or service levels you should include, you can use a larger competitor's contract or proposal as your template. All successful larger firms have highly specific SLAs (service level agreements) that clearly state the performance objectives that constitute success on their part. If your large competitor's contract does not work for you (for example, it is too complex or covers too many areas), enlist the services of an attorney to create a better contract. You can also use DocStoc or other services that provide legal documentation. Always have an attorney review and approve your contract before making that contract a standard part of your business operations.

Regular Communication

In addition to clear contract performance language, it is very important to provide customers with regular, ongoing communication. Instead of emailing, you may need to meet in person with your client if the company is local, or use Skype or another video presentation program if your customer is not. When clients get frustrated it is typically due to a communication breakdown. Therefore, more in-depth communication is better. When differences arise, it behooves you to iron out the differences as soon as possible.

Refund or Outsource Service 

If you or your employee did not clearly state the terms of the services your firm provides, you may need to refund a portion of the monies your customer paid or deposited. Either that or you can enlist the help of another service provider with high customer satisfaction who can step in and give your customer what he needs. Your options typically depend on the amount of time that exists before the delivery deadline. If you are close to or past the deadline, a refund may be the most suitable option. However, involving another service provider - when possible and applicable - is a form of "co-optition".  Friendly "co-optition" (a word from my MBA days!) can help you build partnerships and hence, your business.

Teacher explaining math on chalkboard.
Most of your education as an owner occurs outside the classroom.
Refund as Educational Expense

If you refund some of your customer's deposit or payment, consider the refund an educational expense. Sometimes we must lose money in order to learn a lesson. Any lesson that results in  the strengthening of our business operations - including contracts, customer service, and partnerships - is a valuable lesson. If addition, I highly recommend all business owners obtain business insurance that includes errors and omissions insurance. E&O insurance protects you and your business if your client decides to sue you for nonperformance.

Take High Road

Lastly, if a customer is truly upset by your firm's lack of service or poor performance, take the high road and be conciliatory. I have converted irate customers to long-term customers by biting the bullet, apologizing and genuinely taking their comments to heart. Even if a complaining customer does not come back, he could still provide a reference at a later date. He may not have liked your particular service offering for himself or his business, but he could recommend your service to others who he may find a better fit for what your company offers. You always have an opportunity to provide good customer service, even after parting ways!

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