Shipping and Refund Rules for Businesses

Learn about FTC shipping and refund rules that apply to businesses.

When taking orders, whether by phone or online, you must follow the shipping and refund rules of the Federal Trade Commission's (FTC's) Mail or Telephone Order Merchandise Rule, also known as the "30-Day Rule." In a nutshell, the rule mandates that when you advertise merchandise and state the shipping times, you must have a reasonable basis for believing you can meet these shipping deadlines.

The 30-Day Rule

If you don't say anything about shipment times, you're expected to ship within 30 days from the date you received a properly completed order -- that is, when you receive the payment and all the information needed to fill the order. The rule does not apply to collect-on-delivery (C.O.D.) orders, sales of seeds and growing plants, or magazine subscriptions (except for the delivery of the first issue).

If you notify the customer of a delay, you'll need to get the customer's consent. This is also true for online orders, which are considered complete when the customer clicks it along to you. If you can't get the customer's consent to the delay, you must, without being asked, refund the money the customer paid you for the unshipped merchandise. If there's a shipping delay and you don't want to seek the customer's consent, you can simply cancel the order, notify the customer, and refund the payment. Keep a record of how you gave the notice (whether by email, phone, fax, or regular mail), when you gave it, and how the customer responded. Again, if you don't say anything about shipment times at the time of the order, you're expected to ship within 30 days.

Drop Shipping

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, who ships to the customer using your packaging. Amazon and other online stores perfected this art, and it has since been adopted by thousands of online retailers. The advantage of drop-shipping is that you can offer a wide variety of merchandise without maintaining an inventory. The disadvantage is that you may have to pay setup fees, make a minimum number of orders each month, and deal with refunds if the drop shipper screws up.

In cases of drop-shipped orders, you (the person taking the order), not the shipper, are responsible for complying with the 30-day rule. Find out the distributor's return policy and post it at your point of sale or in your catalog, 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 purchased the product from you, not the distributor, 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 to accurately track and process the returned merchandise.

To learn about starting and running your own business, see Legal Guide for Starting & Running a Small Business, by Fred S. Steingold or Running a Side Business: How to Create a Second Income, by Richard Stim & Lisa Guerin (Nolo).

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