Refund/Reimbursement - What is a refund/reimbursement?
A refund is when a customer wishes to return a product that they have paid for.
Debitoor is a comprehensive accounting system catering to small business and freelancers alike. Try Debitoor for free with a 7 day trial period.
Reimbursement is giving someone money if they have purchased something on your behalf so they are not out of pocket whatever 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 product they ordered was delivered
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 have paid for at the time with their own money.
Once they have 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 is 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 United Kingdom you live, some rights for refunds (or exchange/ repair) will differ slightly regarding how long you you have to request a refund if an item is faulty or stops working.
The Consumer Rights Act 2015 (which replaces the Sale of Goods Act 1979 (unless the item was purchased before the 1st of October 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 is 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 are allowed to request a repair or replacement if a fault develops.
Business rights when buying from other businesses
Business rights when buying from other business are similar to consumer rights in the sense that legislation outlined applies to both products and services. However, for a business, these rights also extend to hiring equipment, hire purchases, or part exchanges.
What does this mean for consumers?
In the UK, consumers 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 is 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 is 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, repair).
What does this mean for businesses?
Although business are allowed to set their own policies in regards to returns/ exchange (and whether certain items can be returned at all - usually these are for hygiene reasons), the Consumer Rights Act (2015) is still stands for consumers to rely on. If business 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 is also important to note that these rules apply worldwide - meaning that if you are 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, which will offset against the amount on the invoice issued. This note is a log that a refund has occurred or is to occur. Once completed, the amount can then be returned to the customer.
Refund and Reimbursement with Debitoor
Creating a credit note is quick and easy with Debitoor. You can create a credit note based upon the original invoice that was sent, so that everything is 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.