Rules for Online Shipping and Returns

If your products are late getting to customers, not only will it cause you a loss of goodwill, it may also violate federal law.

As you may know, creating an online product business is a challenging task. Initially, there is the search for the right product(s) to sell. Then there are the next group of hurdles -- producing and maintaining your product line. Then, there is the challenge of bringing eyeballs to your site -- the dreaded marketing and SEO dilemmas. Then, there is the final stage of fulfillment – the shipping, delivery and return of products. This article should help answer some questions about this final stage.

Shipping and Delays: The Legal Rules

If your products are late getting to customers, not only will it cause you a loss of goodwill, it may also violate federal law.

FTC rules. The Federal Trade Commission’s Mail or Telephone Order Merchandise Rule, also known as the “30-Day Rule,” imposes basic shipping and refund rules on businesses. When you advertise merchandise online and don’t say anything about when you plan to ship, you’re expected to ship within 30 days from when you receive the payment and all the information needed to fill the order. If your listing does state when you will ship the merchandise — for example, within two days of payment — you must have a reasonable basis for believing you can meet this shipping deadline.

If there's a delay — that is, it will take longer than 30 days for you to ship (or longer than you promised?) — you have two choices.

  • You can ask for the customer’s consent. If you can’t get consent to the delay, you must, without being asked, refund the money the customer paid you for the unshipped merchandise
  • You can simply cancel the order, notify the customer, and refund the payment.

Keep a record of how you notified the customer about the delay, whether by email, phone, fax, or regular mail, when you gave it, and how the customer responded.

Drop-shipping. In cases of drop-shipped orders, you (the person taking the order), not the shipper, is responsible for complying with the rule.  Because you’re responsible for a drop-shipper's screw-ups, find out the distributor/drop-shipper's return policy and post it at your point of sale or in your catalogue, or if that’s not possible, include it with the order. If the customer complains about the merchandise—for example, it arrives damaged or has a factory defect—the distributor will have to correct the error. But because the customer made the purchase with you, not the distributor/drop-shipper, you’ll have to stay on top of the transaction—for example, get the RMA (return merchandise authorization) number from the distributor and email it to the customer. The RMA allows you and the distributor/drop-shipper to accurately track and process the returned merchandise.

Returns and Refunds

Your returns policy can be a marketing tool. What could be better than a money-back guarantee? Millions of consumers confidently patronize certain online businesses — for example, Amazon, Land’s End, or REI — because these companies have customer-friendly, simple-to-use return policies. On the other hand, every consumer remembers an unpleasant experience trying to return something and probably stopped shopping at that business afterwards.

Not every business needs an unlimited return policy, but we do recommend that you establish a customer-friendly policy of some sort and that you communicate it to your customers. Before you draft that policy, keep in mind the legal rules. You don’t have to give a refund unless:

  • you broke the sales contract — for example, your goods were defective, or
  • you have a policy that allows a refund for returns.

If you want to provide refunds and impose conditions on when merchandise can be returned, post your return and refund policy prominently with your listing or at your store. For example, a typical policy might require the customer to return the merchandise within 30 days for a refund.

State rules on refunds. A few states have laws regarding refunds. It's not always clear whether these laws apply to online retailers doing business with residents of these states. California's law seems to apply to Internet transactions because it applies to "other sellers of goods at retail, and mail order sellers which sell goods at retail in California …" New York's law is silent on the issue. So far, there have been no cases enforcing this issue but if you prefer to err on the conservative side, then sellers dealing with residents of these states should consider abiding by the retail rules as follows:

  • California. You must post your refund policy unless you offer a full cash refund or credit refund within seven days of purchase. If you don’t post your policy as required, the customer is entitled to return the goods for a full refund within 30 days of purchase.
  • Florida. If you do not offer refunds, that fact must be posted. If the statement isn’t posted, the customer can return unopened, unused goods within seven days of purchase.
  • New York. If you offer cash refunds, that policy must be posted, and you must give the refund within 20 days of purchase.
  • Virginia. If you don’t offer a full cash refund or credit within 20 days of purchase, you must post your policy.


Tip: Stay Away From Drop Shipping

If you're like most online businesses that sell and ship products, you probably maintain an inventory of products and ship when you get orders. With this arrangement you have complete control of the order until you hand it off to the USPS, UPS, or FedEx.

Drop-shipping is a process in which you sell items you don’t keep in stock. Instead, you collect the money and forward the order to a distributor or manufacturer, who ships to the customer, usually using your packaging. The drop-shipper bills you for the sale. Drop-shipping sounds appealing because you can offer a wide variety of merchandise without maintaining an inventory. And for many web-based stores, it works well. But there are many disadvantages of using drop-shipping for an online business, including:

  • You may be required to pay expensive setup fees — always avoid any drop-shipper who requests this.
  • You may have to make monthly minimum orders regardless of your sales — watch out for this requirement.
  • If the drop-shipper screws up, it may be difficult to obtain a refund for the customer — and you're the one stuck with the negative feedback.
  • You will have little control over an item's price The drop shipper may suddenly mark up an item, cutting into your profits.
  • Drop-shippers are often in long lines of distribution, so that if any step along the way has a problem —     manufacturer, wholesaler, middleman — you will suffer.
  • You will unlikely have any warning before the drop-shipper runs out of stock — again, more negative feedback.

Note for eBay Businesses: Drop-shipper lists are often sold on eBay — beware, these are often companies that flood the eBay market with similar merchandise.  

 Posting Terms and Conditions

Many online stores reflect their shipping, return and other policies in their “terms and conditions.” Do you need conditions and terms at your online store? Maybe. Below is an explanation for some common T&Cs.

Disclaimers. You may want to include disclaimers — statements that inform customers that you won’t be liable for certain kinds of losses they might incur. For example, you may disclaim responsibility for losses that result if pottery breaks when a customer ships it back for return.

Privacy. If you are gathering information from your customers, including credit card information, you should post a privacy policy detailing how this information will be used or not used. Yahoo!’s privacy policy is a good example of a broad, easy-to-understand policy. Whatever policy you adopt, be consistent, and if you are going to change it, make an effort to notify your customers of the change.

Chats, Reviews, and Comments. If your website provides space for chats, product reviews or postings from the Web-surfing public, you’ll want to limit your liability from offensive or libelous postings or similar chat room comments. There are three things you can do.

  1. First, regularly monitor all postings and promptly take down those you think are offensive or libelous.
  2. If a third party asks you to remove a posting, remove it while you investigate. If you determine — after speaking with an attorney — that you are entitled to keep the post, then you can put it back up.
  3. Include a disclaimer on your site that explains you don’t endorse and aren’t responsible for the accuracy or reliability of statements made by third parties. This won’t shield you from claims, but it may minimize your financial damages if you’re involved in a lawsuit over the posting.  

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