Refund/Reimbursement - What is a refund or reimbursement?

A refund is the act of paying back a customer for goods or services purchased that they were not satisfied with.

If your business issues a refund to a customer, you should also cancel the related invoice with a credit note

Reimbursement is the act of giving someone money if they’ve purchased something on your behalf, so they’re not out of pocket for the amount they have spent.

Why provide a refund?

A refund might be necessary for many reasons - a few common ones being:

  • The customer has simply changed their mind after purchase

  • The product wasn't the correct product they ordered

  • The product they ordered was the wrong product, and they meant to order a different one

  • More than one of the products they ordered was delivered

Why reimbursement?

Reimbursing, or being reimbursed is necessary when you have paid for something on behalf of someone else, or they have paid on your behalf. In regards to businesses, this is something that you would do for your employee(s) if they have expenses that they’ve paid for at the time with their own money.

Once they’ve submitted their receipts to the relevant department or person, they can then claim the money back from you. To keep reimbursements to a sensible number, it’s common for companies to give their employees a certain allowance per day to spend on specified expenses (usually breakfast, lunch, and dinner).

When can I ask for a refund and when do I have to give one as a business?

Depending on where in the UK you live, the rights for refunds will differ slightly regarding how long you have to request a refund if an item is faulty or stops working.

The Consumer Rights Act 2015 outlines under which conditions consumers are allowed to request a refund, and businesses rights for when they must allow the possibility of a refund.

The Consumer Rights Act 2015 outlines that goods (products) sold must be satisfactory, fit for purpose, and as described. If the product is faulty, as a consumer, you can lodge a complaint. 

This means that the complaint has to be made to the retailer you bought it from- not the company who makes the product (unless you bought the product directly from the manufacturer). You can request a refund within 30 days (in-store), or 30 days from the date of delivery. 

After 30 days, the retailer must be given the chance to offer a repair or replacement. It’s possible to ask for a refund after 30 days if the cost of repair is too high, a replacement is impossible, a repair or replacement would be a serious inconvenience or a repair or replacement would take an unreasonable amount of time

This 30 day right of refund does not apply to digital products such as downloads, although you’re allowed to request a repair or replacement if a fault develops.

Business rights when buying from other businesses

Business-to-business (B2B) rights are similar to consumer rights in the sense that legislation applies to both products and services. However, for a business, these rights also extend to hiring equipment and part exchanges.

What does this mean for consumers?

In the UK, consumer rights are well protected (5 years in Scotland, and 6 years in England) depending on what the product is. If the product develops a fault within the first 6 months from the date of purchase, then it’s assumed that the fault existed when the original purchase was made. Therefore, the retailer must provide the option of a refund or replacement.

If the fault develops after the first 6 months from the original purchase date, then it’s up to the consumer to prove the fault. Once this has been done, the same retailer can offer the above options to be carried out within a reasonable timeframe (refund, exchange or repair).

What does this mean for businesses?

Although businesses are allowed to set their own policies in regards to returns and exchanges, the Consumer Rights Act (2015) still stands for consumers to rely on. If businesses do not follow these rules, then the consumer could potentially present a case to the Consumer Ombudsman, or alternatively, go through Small Claims Court.

It’s also important to note that these rules apply worldwide - meaning that if you’re a company based outside the United Kingdom, but your customers are in the United Kingdom, then you must also follow these laws.

Refund, reimbursement, and accounting

When dealing with refunds whilst doing your accounting, the first step is to issue a credit note for the amount to be returned. This will offset the amount on the original invoice. 

Credit notes essentially log that a refund has occurred or is to occur. Once completed, the amount can then be returned to the customer.

Refunds and reimbursements with SumUp

Creating a credit note is quick and easy with SumUp Invoices. You can create a credit note based upon the original invoice that was sent so that everything’s kept in order. If the invoice has already been paid, you can send a credit note detailing how and when the customer should receive the money back.

You can also issue a credit note that’s not related to an invoice, for instance, if the customer accidentally paid an invoice twice. If you accept payments via one of the many SumUp payment methods, you can issue a refund in just a few clicks.

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