Simplifying Legal for Small Business Owners

A podcast focused on the things small business owners REALLY need to know about the legal side of their business. Check out all that lawyer, Danielle Liss, has to share on Apple PodcastsGoogle PodcastsSpotify, or wherever you get your podcasts.

Episode #25

Handling Refund and Termination Requests

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Misunderstandings about your refund and termination policies can serve as a big precursor for contract disputes with your clients. Communication and clearly stated policies are key to help you avoid complaints. Today, I’ll talk about how to handle refund and termination requests and look at two aspects: how to structure your contract and how to handle a specific request.

This episode covers some important areas to consider in your agreement that’ll help ensure greater clarity. I give examples of poorly stated contract terms and better suggestions for re-writing them to accurately reflect what you want to offer in your business, whether it’s a service or original creative content. You’ll also hear about some of the most common refund policies I’ve seen in my line of work.

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Introduction

Welcome to the Simplifying Legal podcast, brought to you by Businessese. I’m your host, Danielle Liss.

Many years ago, someone told me I was the least lawyer-y lawyer she’d ever met because I helped make legal easier to understand. To this day, it’s one of the best compliments I’ve received in my professional life.

If you’ve ever felt legal was too scary, too overwhelming, too complicated, or just plain incomprehensible, you’re not alone. The Simplifying Legal podcast was created to help. 

In each episode, we’ll do a deep dive into a legal topic and give you concrete next steps so you can apply it to your business. 

My goal is for you to walk away from each episode thinking, oh, that was easier than I thought it would be.

Let’s get started. 

Episode Content

Hey there, I’m Danielle. Welcome to episode 25 of Simplifying Legal for Small Business Owners. Today, we’re talking about how to handle refund and termination requests. 

Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and does not create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first. 

Now, let’s get started with today’s discussion. 

 

Misunderstandings about your purchase policies can be a big precursor for contract disputes from your clients. We’re going to review two aspects of termination and refund requests. First, we’ll focus on how to structure your contract, and then we will look more closely at how to handle a specific request.

Policies within Your Client Agreements and Contracts

So, let’s look first at your contracts since communication and clearly stated policies are often key for avoiding this type of complaint. 

If you use a client agreement to govern your relationships with your client (and I hope that you do after listening to this podcast), you probably don’t have something called a purchase policy that is clearly listed. Instead your purchase policies may be mixed in a number of clauses. But when I refer to a purchase policy, I mean, if a client is purchasing your services, what does your contract say about them? This is often related to payments, refunds, and termination.

Many customer complaints regarding payments, purchase issues, and refunds are related to poor communication, whether it is a poorly drafted agreement or an ineffective conversation with the client regarding enforcement of your company’s policy.

Here are some important areas to consider in your agreement to help you ensure greater clarity.

Included Services

First, what services are included in the Agreement?

Your agreement should clearly state what services are included. Often, this is included in a statement of work. This should include the deliverables that you are providing to the client and any restrictions that may apply to those deliverables. Too many client complaints start with “well, I thought it included X and I don’t want to pay more for that…” and they then list deliverables that were never included. But, if your agreement isn’t clear, they may not realize their error.

Additionally, it’s important to address what happens if a client exceeds the scope of the agreement. Ensure there is something in your agreement that states they will pay $X for additional time/drafts.

For example, you may include a statement that says something like If Client requests services outside of the scope listed in the statement of work, company will provide Client with an estimate to complete these services.

Also, If you are in a position where the client will receive access to you, but there are limitations, please list those limitations in the deliverables. Be careful when you use words like unlimited or you make statements like, “as much help as you need.”

For example, if, as a coach, you offer limited Voxer or email support, add parameters.

Here’s an example of a poorly drafted provision: Company offers client unlimited access to Coach through Voxer.

Here’s a better way to phrase it: Company offers client access to Coach through Voxer. Coach accepts Voxer messages of up to 5 minutes. Coach aims to respond within 2 business days. Please note that messages sent in the evening or on weekends will be considered received as of the next business day.

Next, if you are a creative and you offer a limited number of revisions to the deliverables, make sure your agreement states this. It ensures your client knows what they will receive and helps protect you from scope creep.

Here’s an example for a provision that might cause confusion: Company will ensure that Client is thrilled with the work created. Client may email us anytime for revisions.

Please consider that While striving for customer satisfaction is important, be cautious of using this type of casual language as it can lead the client to believe that you are offering a guarantee that you will continue working until they are satisfied.

Here’s a better way to phrase it to ensure the customer’s expectations are set appropriately: The services include 3 rounds of revisions. If the Client requires more than 3 rounds of revisions, Client will be charged $x/hour for the completion of this additional work.

When you are considering your services, make sure that you are clear about what is included. 

Payment Terms

Now that we’ve covered deliverables, let’s look at the Payment Terms?

Your payment terms should be clear. How much are you being paid? How frequently? What happens in order to trigger payment? Do you send an invoice? Or is it an auto-bill?

Uncertainty around payments can lead to complaints. Clear communication can help you to avoid these issues.

A Tip for creatives: if you are providing original content to your clients, consider stating that they will not receive any rights to use the content until their payments are made in full. This can help you to ensure that they don’t use the content that you’ve created until the work is paid for.

Just like the deliverables, make sure this section is clear and specific. 

For more information on payments, check out episode 9 on getting paid. 

Offering a Guarantee

The next big area to consider is whether or not you offer a guarantee

In this context, I am referring to a money-back guarantee. Do you offer any sort of money-back guarantee? Is it for absolutely any reason? If it is conditional, please include what has to be done in order to qualify for a refund under the money-back guarantee.

For example, if you offer a package with 10 coaching sessions, and your money-back guarantee is only active if the person doesn’t feel it is a good fit before their third session, ensure that your agreement/policies are extremely clear. If they tell you after session four that they want to end the agreement and get their money back, you need to ensure that your agreement reflects your policies. 

List the steps that are required to take advantage of the guarantee. If it is conditional, is there anything that will be discretionary? For example, if they need to show that they have participated in the program or services, how do they show that and who decides? Usually, it will be the company making the decision, but be sure to include that the decision is in the company’s sole discretion. 

Refund Policies

The last question to consider is what is your refund policy if the agreement is terminated?

Most often, refunds come up when the client decides they’d like to terminate their agreement. This means that they are ending the agreement prior to the date originally listed.

Often, a termination provision will require a set notice period. During that notice period, before the effective termination date, fees may still accrue.

Example: Either Party may terminate this Agreement upon 30 days’ written notice to the other Party.

Additionally, some agreements will require a minimum time commitment. This means that the agreement cannot be terminated until the initial period is completed. I see a lot of three-month commitments, especially with social media managers.

Example: After an initial period of 90 days, either Party may terminate this Agreement upon 30 days’ written notice to the other Party.

Refunds are a hot topic for many small businesses. Here are some common refund policies. 

  •       First, no refunds on amounts already paid: This works well if you are receiving multiple payments for ongoing work. For example, if you are receiving a monthly fee to perform services. This means that you will keep all money that has already been paid, but you would not bill for future services.
  •       Next, no refunds and full amount due regardless of termination: This works well for set term agreements. This is extremely common for some service business owners, especially coaches. The client is agreeing that they will pay the full amount due under the agreement regardless of whether they continue with the service.
  •       Next, is the non-refundable deposit: This works well if you require multiple payments, and you are holding space for someone in your calendar. Often, the initial deposit will be non-refundable, but the full amount may not be due if the agreement is terminated.
  •       Next, a pro-rata payment for completed work: This ensures that you are paid for all work completed prior to the termination date. Then, if there is any remaining balance, you can refund that. This can sometimes work in tandem with a non-refundable deposit. You would keep the deposit and then you are paid for the work completed.
  •       Last is a full refund: In some cases, you may offer a full refund if someone isn’t satisfied. This is less common for service-based business owners. This could also be related to the guarantee above, so be sure to carefully review that section.

Remember, for your contract, think through what you want your policies to be and make sure they are clear. 

Of course, handling refund requests may be simple if you have a clear policy, and your client doesn’t ask for anything beyond what is set out in your agreement. 

But, and you know there’s a but…. Most problems arise when a client requests a refund when one is not due, and you have explicitly stated your policy in the agreement. 

So now let’s look at how to approach this type of request. In these circumstances, it may be necessary to look at the situation on a case-by-case basis.

For example, the pandemic greatly impacted many people economically. Even though a company stated no refunds, they may have made exceptions during the pandemic.

As I tell all of my legal clients – you can always decide to make an exception to your own policy if it makes sense for your business. If you think offering a refund now could lead to the client coming back in the future with more business, this may be a calculated risk that you feel is worth taking. Or maybe dealing with the problem client is going to take too much time away from your team and, in your eyes, it isn’t worth it to spend more time on it, so you issue the refund. 

I have a number of clients who consider how the request aligns with their core values. I vividly remember discussing a refund request with a client, which was against very clearly stated policy, and she decided to honor it because it didn’t feel aligned with her ethics and the core values that she set for her business. 

As you can guess, unfortunately, not all refund requests end happily. You may have a customer who is unhappy when you enforce your refund policy. Then, you will need to make a decision about how to move forward with that particular client. If dealing with the situation is taking your time and energy, it may be worth it to cut your losses and offer some type of refund.

Many people decide to treat this as a settlement to a potential dispute. This may require some negotiation and finding a number that both parties agree to. In some cases, if you want to ensure confidentiality regarding the refund or you want them to state that they will not make any claims against you in the future, it may make sense to obtain a settlement agreement with a release of claims. For a refund request, these can be relatively simple agreements, but they do offer a lot of protection to ensure no future claims are filed. 

Action Steps

Now let’s talk about today’s action steps.

  1. First, what are your purchase policies? Are they clearly stated in your client agreement? If not, consider whether you should update. 
  2. Next, do you have a standard operating procedure for dealing with refund requests for your team? Way too often, refund requests can escalate into a “let me talk to your manager” situation, so consider what the process should be for exceptions and who is authorized to make that decision. 
  3. Last, as always, if you aren’t sure how this type of request, please reach out to a lawyer. Sometimes, it helps to talk through the options with your attorney to decide which path is the best option. 

Thanks for joining me for today’s episode on how to handle a termination or refund request. 

I’d love to connect with you outside of the show. Visit Businessese at businessese.com. To find show notes for today’s episode, visit businessese.com/podcast.

Please subscribe to the Simplifying Legal Podcast if you haven’t already. 

If you like the podcast, I’d love it if you give the show a review in Apple Podcasts, Stitcher, or wherever you listen to podcasts. 

If you have any questions, you can reach out via email at: [email protected]

Thanks for listening and we’ll continue Simplifying Legal on next week’s episode.

 

[02:27] – Poor communication affects customer complaints about payments, purchase issues, and refunds.

[03:21] – What happens if a client exceeds the scope of their agreement? This simple statement added to the contract can save you lots of headaches!

[03:56] – Be careful about using these words if clients will have access to you or one of your team members individually.

[05:57] – If you’re a creative offering a limited number of revisions, state this in your agreement to help protect yourself from scope creep.

[07:21] – Danielle discusses clearing up any uncertainty regarding your payment terms.

[07:44] – Danielle offers a tip for creatives who offer original content to help guard usage rights.

[08:24] – Do you offer a money-back guarantee? Is it for any reason or based on certain conditions?

[09:18] – For conditional money-back guarantees, take a look at any aspects of it that are discretionary.

[09:58] – Danielle covers what to consider in your refund policy if one of the parties terminates the agreement.

[10:54] – Hear some of the most common refund policies Danielle usually encounters.

[12:45] – Most problems arise when clients request a refund when one isn’t due. Danielle discusses how to approach this scenario.

[14:58] – A lot of times companies will try treating an ongoing issue with an unhappy, refund-seeking client as a dispute settlement.

[15:55] – It usually doesn’t happen, but what can you do if you find yourself in ongoing disputes with clients often?

[16:39] – Danielle wraps it up with a couple of action steps.

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