As a small business owner, you have a certain ideal vision of how customer interactions will go. Someone will find your product. They’ll be intrigued and buy it. You’ll ship them the product with the perfect packaging materials for shipping, and it will arrive quickly with no issues. They’ll love it, leave a glowing review, and come back to you for future purchases.

Nowhere in that vision is the phrase, “I’d like to return this.”

Returns are a reality you have to face as a small business owner. And, while they may not be ideal, they also don’t have to be scary. This guide will go over how to handle returns as a small business. It’ll go into why returns happen and touch on the elements of return policies that you should consider when deciding on your own.

Why Do Items Get Returned?

Your product is solid. You know that. You’ve got the satisfied customer reviews to prove it. So why are you still faced with people trying to return your product?

There are many reasons people may return items:1

  • Mistakes – Sometimes people make mistakes. Maybe your customer ordered the wrong item. Maybe the product that was shipped was defective. Maybe it was damaged in transit. Any of these reasons could lead to a return.
  • Dissatisfaction – Not everyone has the same taste. Just because someone is dissatisfied with your product doesn’t necessarily mean there was anything wrong with it. They may have just expected something different.
  • Change – Situations can change. It’s always possible that what you thought you needed today, turns out you don’t need it by the time it arrives. Also, maybe something was purchased as a gift and the recipient didn’t want or need the item. This accounts for a lot of returns.

Regardless of the reason, take heart in knowing that you aren’t alone. In 2020, an estimated $428 billion in goods was returned.2 That’s over 10% of total retail sales for the year. If you run a business, you’ll need to deal with returns at some point.

Product returns don’t necessarily mean you’re doing something wrong. The sad truth is that not everyone will be satisfied with a product, and that’s completely okay. But the customer service provided before, during, and after a return process can say a lot about your business as well. So, how do you handle returns while offering great customer service? You can start by being clear and transparent about the return policy from the start.

Creating a Return Policy

Returns are a reality. That means you need to be prepared. As a small business, you have a bit more leeway than larger stores as you’re often able to have more contact with your customers, but that doesn’t mean you should just wing it when it comes to returns. By being clear about your policy, you ensure that your customers will know what to expect when they decide to return something.3

Here are a few things to include in your small business return policy:

Exchange or Refund

The first question you have to ask is whether to offer customers exchanges or refunds (you can also offer them nothing in a buyer-beware scenario, but that will likely lead to a lot of angry customers). Each has benefits to consider:

  • Exchange – Ensures you don’t lose out on the initial sale. It also, keeps the customer interacting with your products, giving you a chance to turn dissatisfaction into happiness. However, some customers will not be happy with an exchange option.
  • Refund – Ensures maximum customer satisfaction. Builds trust between you and your customers. However, this will cost you more and may make you more susceptible to fraud. You also need to determine if they’ll be refunded back how they paid or if the amount will be in a form of online store credit. Or, your refund policy can be a mix of both – full refund after x amount of time and online store credit after that.
  • Hybrid4 – If you sell a variety of products, you may want to split up what is returnable and what is exchangeable. It’s a good idea to be very clear about what can be returned and which can be exchanged. Any lack of clarity on your part could lead to confusion and angry customers, so for some businesses, a blanket policy for all items makes more sense.

Proof of Purchase

A seemingly easy way to combat potential return fraud is to include a need for proof of purchase in your return policy. Especially for online retailers, remember that people may not have printed out or saved their receipts. Making it easy to retrieve receipts can add to customer satisfaction if you implement a proof of purchase requirement.

Time Limit

Do you want people to be able to return your items in perpetuity? In most cases, the answer to that will be no, so it’s important you set up a time limit where you will accept returns. 30 days, 90 days, 1 year, the actual timing can be up to you so long as it’s clear. This is another area where being clear with the rules will help you avoid angering customers (though no amount of clarity will satisfy everyone).5

Return Shipping

With online and ecommerce returns comes the topic of return shipping. Will you pass on the cost of return shipping to your customers, or will you cover it and offer free returns? Will they have to make out their own return labels, or will you send one? You need to know the answers to these questions before starting the return process so there are no hiccups. Some things to keep in mind include:

  • Speed – When you ship things to a customer, speed matters. It’s likely not as important when they return items to you. Having different shipping arrangements for purchases and returns may help you save money.
  • Price – Speaking of saving money, maybe you ship out using UPS but returns will be cheaper to handle through the USPS. Be sure to shop around and compare DHL vs UPS vs FedEx, etc.and see what’s available before you lock into one carrier out of convenience.
  • International returns – Just like asking how to ship internationally, you may be wondering how to get returns shipped internationally. If you have international customers, you’ll need to factor in the time, speed, and price of the return shipping as well. 

While it may be more difficult for small businesses to deal with customer returns, it helps to be transparent about your policy. This can prevent angry customers during the returns process and build customer loyalty, and not to mention, save you money.

Streamlining Return Gives Your Business an Edge

By having an easy, customer-friendly return policy, you can build trust and goodwill with your customers. Returns are an invitation to reinvest in your customer loyalty and relationship, to show that you’re a trustworthy business before and after purchase. So make sure you’re getting the most out of your shipping by staying above-board with return services. 

If you’re in need of shipping solutions and strategies, Shipware is here to help. Shipware provides logistics and shipping optimization to help you reduce shipping costs, improve customer satisfaction, and increase your profits. Learn more and contact us today to get started. 



  1. Small Businessify. How Small Businesses Can Deal with Refunds.
  2. National Retail Federation. $428 Billion in Merchandise Returned in 2020.
  3. The Hartford. What’s the Best Returns Policy for Your Small Business?
  4. Verizon. How To Write a Small Business Return Policy That Keeps Customers Happy.
  5. Online How To Handle Product Returns As A Small Business.