Every business that sells products or services online needs a clear refund policy. It’s not just about keeping customers happy — it’s about protecting your business from disputes, chargebacks, and legal trouble. Whether you’re running an eCommerce store, selling digital products, or offering SaaS subscriptions, a well-written refund policy sets expectations and keeps everyone on the same page.

But here’s the problem: most businesses either copy a generic template that doesn’t match their business model, or they write something so vague that it creates more problems than it solves. In this guide, we’ll show you how to create a refund policy that works for your specific business type, complies with consumer protection laws, and actually protects you when disputes arise.

Why Every Business Needs a Clear Refund Policy

A refund policy isn’t optional — it’s a legal requirement in many jurisdictions. In the UK, the Consumer Rights Act 2015 gives customers certain rights to return goods and receive refunds. In the EU, the Consumer Rights Directive requires online sellers to offer a 14-day cooling-off period for most purchases. Even in the US, while federal law is less prescriptive, individual states have their own consumer protection laws.

But beyond legal compliance, a clear refund policy serves several important business purposes:

Reduces customer service time: When customers know exactly what to expect, you spend less time answering the same questions repeatedly.
Prevents chargebacks: Payment processors take chargebacks seriously. Too many can get your merchant account suspended. A clear policy helps you defend against unwarranted disputes.
Builds trust: Customers are more likely to buy when they know they can get their money back if something goes wrong.
Sets boundaries: A well-written policy protects you from unreasonable refund requests that could eat into your margins.

The key is to strike the right balance: fair enough to build customer trust, but specific enough to protect your business from abuse.

Legal Requirements You Need to Know

Refund policy laws vary by jurisdiction, and if you sell internationally, you need to comply with multiple sets of rules. Here’s what you need to know:

UK Consumer Rights Act 2015

If you sell to UK customers, you must offer a 14-day cooling-off period for online purchases. This means customers can cancel their order for any reason within 14 days of receiving physical goods, or 14 days from the date of purchase for digital products and services. You must refund them within 14 days of receiving the returned goods.

However, there are important exceptions. The cooling-off period does NOT apply to:

Digital products that have been downloaded or streamed (if the customer agreed that the cooling-off period would end upon download)
Custom-made or personalised items
Perishable goods
Sealed software or media that has been opened

If your product falls into one of these categories, you still need to state that clearly in your refund policy. You can’t just say “no refunds” without explaining why.

EU Consumer Rights Directive

The EU has similar rules to the UK, with a 14-day cooling-off period for online purchases. If you sell to EU customers, you must provide a standard withdrawal form and refund the customer within 14 days of receiving the returned goods. You can charge return shipping costs if you stated that clearly in your policy.

For digital products, you can waive the cooling-off period IF the customer explicitly agrees before purchasing that they will lose their right to cancel once they start downloading or streaming. This agreement must be separate from your general terms — a checkbox that the customer actively ticks.

US State Laws

The US doesn’t have a federal cooling-off period for online purchases, but individual states have their own rules. California, New York, and several other states require businesses to clearly display their refund policy before the customer makes a purchase. If you don’t display a policy, some states assume you offer a full refund within a reasonable timeframe.

For digital products and subscriptions, the FTC’s Negative Option Rule requires that you clearly disclose the terms of any recurring charges and make it easy for customers to cancel. This applies to SaaS businesses, membership sites, and subscription boxes.

Refund Policies for Different Business Types

Not all refund policies are created equal. What works for an eCommerce store selling physical products won’t work for a SaaS business. Here’s how to tailor your policy to your business model:

eCommerce Physical Products

If you sell physical goods, your refund policy needs to cover:

Return window: How many days do customers have to return items? (Minimum 14 days in UK/EU)
Condition requirements: Do items need to be unused, unopened, or in original packaging?
Who pays return shipping: You, the customer, or split depending on the reason?
Refund method: Original payment method, store credit, or exchange only?
Non-returnable items: Hygiene products, custom items, sale items — list them explicitly.

Example clause: “You may return any item within 30 days of delivery for a full refund, provided it is unused and in its original packaging. You are responsible for return shipping costs unless the item is defective or we sent the wrong product. Refunds will be issued to your original payment method within 7 business days of receiving the returned item.”

Digital Products (eBooks, Templates, Courses)

Digital products are tricky because once a customer downloads your product, you can’t “get it back.” However, you still need to offer some form of guarantee to comply with consumer protection laws and build trust.

Your policy should specify:

Time limit: A 7-14 day money-back guarantee is common for digital products.
Conditions: What qualifies for a refund? Technical issues? Dissatisfaction? Make it clear.
Proof of attempt: Can you require customers to try the product and contact support before refunding?
Digital access revocation: State that refunded customers will lose access to member areas or future updates.

Example clause: “We offer a 14-day money-back guarantee on all digital products. If you are not satisfied for any reason, contact us within 14 days of purchase for a full refund. Please note that by downloading this product, you waive your right to cancel under the UK Consumer Rights Act, as you have agreed that the contract begins immediately.”

SaaS and Subscription Services

For subscription-based businesses, your refund policy needs to address recurring billing, cancellations, and partial refunds.

Key elements to include:

Billing cycle: Monthly, annual, or other? When will customers be charged?
Cancellation process: How do customers cancel? Is it instant or at the end of the billing period?
Refunds on cancellation: Do you offer pro-rata refunds, or do customers keep access until the end of the paid period?
Trial periods: If you offer a free trial, state clearly when billing begins and how to cancel before being charged.

Example clause: “You may cancel your subscription at any time from your account dashboard. Cancellations take effect at the end of your current billing period, and you will retain access until that date. We do not offer pro-rata refunds for partial months. If you are not satisfied within the first 30 days of your initial subscription, contact us for a full refund.”

Key Clauses to Include in Every Refund Policy

Regardless of your business type, every refund policy should include these core elements:

Eligibility criteria: What qualifies for a refund? Be specific.
Time limits: How long do customers have to request a refund?
Process: Step-by-step instructions for requesting a refund (email address, form, customer portal).
Processing time: How long before the customer receives their money back?
Exceptions: What is NOT refundable? List explicitly.
Contact information: Who should customers contact with questions?

The more specific you are, the fewer disputes you’ll face.

Common Mistakes to Avoid

Even businesses with refund policies often make critical mistakes that leave them vulnerable. Here are the most common pitfalls:

Being Too Vague

Saying “we offer refunds on a case-by-case basis” is not a policy. Customers need to know exactly what to expect. Vague policies lead to disputes, chargebacks, and negative reviews.

No Timeframes

If you don’t specify when refunds will be processed, customers assume “immediately.” Be realistic about processing times (5-10 business days is standard) and communicate clearly.

Ignoring Digital Goods Rules

Many businesses selling digital products copy-paste refund policies designed for physical goods. This doesn’t work. You need to explicitly address the loss of cooling-off rights when customers download digital content, or you could be forced to refund even after they’ve accessed everything.

Hidden Policies

Your refund policy must be easy to find. Link to it from your checkout page, footer, and confirmation emails. Some jurisdictions require it to be displayed BEFORE the customer completes the purchase. Bury it in your terms and conditions, and you’ll lose disputes.

No Distinction Between Defective and Non-Defective Returns

Customers have stronger legal rights when a product is faulty or not as described. Your policy should distinguish between refunds for defective items (which you must always honor) and discretionary refunds for change-of-mind returns.

How to Get Started

Writing a refund policy from scratch can be overwhelming, especially when you’re trying to balance legal compliance, customer satisfaction, and business protection. You need to consider your business model, the jurisdictions you sell in, and the specific edge cases that apply to your products.

That’s where LegalForge comes in. Instead of spending hours researching consumer protection laws or paying a lawyer hundreds of pounds for a generic template, you can generate a fully customised refund policy in minutes. Just answer a few questions about your business, and LegalForge produces a policy tailored to your industry, location, and product type — all for just £19.

Every policy includes:

Compliance with UK, EU, and US consumer protection laws
Business-specific clauses for eCommerce, digital products, or SaaS
Clear timeframes, processes, and exceptions
Plain-English language that customers actually understand

Plus, when regulations change, you’ll get updates to keep your policy current.

Ready to protect your business with a professional refund policy? Generate yours now and have it live on your site in minutes.

Refund Policy Template: How to Write One That Protects Your Business