How to design business refunds that maintain customer satisfaction

Since the pandemic, many businesses have been hit with the sting of event cancellations, refunds and cash flow issues.

Despite being two years in, the refund wave is showing no signs of stopping. In fact, many Australians are still chasing tens of thousands in refunds from cancelled trips mid-pandemic. 

Business industries like events, sports and travel have been hit the hardest when it comes to refunds. And while many are jetting away for winter escapes or European holidays now that COVID-19 restrictions have lifted, cancellations and refund requests are at an all-time high.

Hundreds of holidays and flights have been cancelled recently in Australia and Europe due to staff shortages, COVID-19 and the Ukraine war, putting pressure on businesses once again to process mass refunds. 

Despite this, consumer patience is wearing thin with poor processes, delayed payment times and last minute cancellations. Customers now expect their money to be returned quickly and with ease, but not all businesses have the infrastructure in place to do this.

Here’s how businesses can design better infrastructure to retain customers and stay afloat during peak refund periods.

Tips for business refunds

1. Ironclad your refund policies and provide flexibility in the case of cancellations

   Most people don’t realise that processing mass refunds is a complex financial process for businesses, often involving other parties or multiple payment systems. Consequently, customers often believe returning their money is as simple as pressing a button. However, there’s a lot of complexity surrounding scheduling refunds in a clean, efficient and fast manner.

   As a business, you need to ensure you design your financial processes and tech in anticipation of refunds. Make sure your refund policies are in place and completely transparent to your customers. Having a single source of truth for managing refunds is a good starting point for businesses when reviewing operations. Likewise, avoid being rigid or inflexible when it comes to cancellations or refunds. Try to provide your customer with an alternative option, credit or partial refund. Customers are more flexible and loyal than you think, as long as you’re willing to work with them and provide options.

2. Opt for deposits over full funds to avoid cash flow issues

   Many businesses make the mistake of taking the full funds from customers upon booking. While pre-pandemic this was normal business practice, in today’s world of last minute changes and COVID-19 restrictions, taking full funds could hurt your businesses cash flow. 

   Businesses need to move away from using the money as they get it and instead use past refunds, cancellations and non-attendance numbers to work out how much money they need. When a business takes deposits only, it reduces its risk of having to return the full funds, which may have already been spent on expenses. Customers have a legal right to a refund if something is cancelled, but at the same time, this puts a lot of pressure on small to medium-sized businesses that have been heavily impacted by the pandemic. Taking partial payments in the form of deposits over full funds avoids your business having to provide mass refunds to customers which could seriously impact your businesses financial position and cashflow. 

3. Redesign your back-end tech to process refunds more efficiently

   Processing refunds is a highly technical procedure which can take some time. Unfortunately, customers do not always understand or appreciate the technical nature of returning funds. In the past, businesses would use money received for future services, events or products immediately in order to pay business expenses. However, nowadays doing so comes with significant financial risk. In the past two years, millions of dollars have been processed in refunds in Australia alone. This process has impacted businesses significantly and has put many at risk of financial hardship.

   With the Australian economy currently suffering, and inflation at an all-time high, businesses can no longer risk being put in a financially difficult situation. Thus, your customer deposits and funds must be kept in separate spending pools, until the service has been completed. Keeping your customer funds in separate financial buckets means if you’re hit with significant refunds the business has the funds to return them. While this means you’ll have to operate on a leaner budget, you’ll avoid being stung with a substantial sum in the event of customer refunds. 

4. Be aware of your legal obligations to customers

   The ACCC is cracking down on businesses that fail to provide customers with fair reasons for cancellations or with refunds in an adequate and timely manner. In today’s new normal world of restrictions and cancellations, it’s more imperative than ever to understand your legal obligations to customers regarding business refunds. The ACCC has a guide to consumer rights for businesses surrounding COVID-19 cancellations and other cancellations for consumers. 

At the end of the day, many industries have been impacted by changes to their online payments and processes, but businesses that have adapted have fared best.

With thousands of flights and events recently cancelled across the globe, and countless left stranded, it’s clear that bulk refunds are here to stay. With that in mind, businesses should re-examine their processes and tech to avoid any potential financial and operational risks.