How to Handle Customer Disputes & Refund Requests in Dropshipping

Effective dispute and returns management is a crucial skill when running a dropshipping business. In a dropshipping business model, retailers order products directly from dropshipping suppliers, who ship products directly to the end consumer. This fulfilment method allows retailers to sell products without inventory, eliminating overhead costs associated with inventory management, warehousing and shipping. However, a lack of direct control over inventory can complicate the returns process. As the face of the business, dropshipping retailers must maintain customer satisfaction regardless of who is at fault. 

We at Dropshipzone have compiled a comprehensive guide to navigating customer requests, disputes and refunds for dropshipping. In this blog, we’ll discuss the importance of handling disputes effectively, the most common causes for returns, and actionable strategies and systems to manage returns and ensure customer satisfaction effectively.

The importance of handling customer disputes and refunds in dropshipping

Disputes and returns can take a significant toll on your business. The average return rate for ecommerce is 20-30 per cent - that means for every 100 orders, you’ll have to manage 20-30 refund requests. 

When a customer decides to return a product, it’s important to keep in mind that the cost of a return includes more than just the original purchase amount. In fact, 76 per cent of customers look for free returns when making a purchase. As a dropshipping store, you are responsible for these return shipping costs. Additionally, some suppliers charge restocking fees. Then there are the other costs associated with reverse logistics, such as transportation and disposal, which can also add up and cause a dent in your wallet. These processes take time and money, so it’s important to factor them in when considering your overall business costs.

As well as the financial cost, customer disputes and returns affect your brand reputation. 84 per cent of shoppers will stop shopping with retailers that deliver a poor customer service experience. Conversely, a positive return process experience that exceeds customer expectations can increase customer loyalty beyond where they started. If customer service is excellent even after a mistake, 78 per cent of customers will do business with them again. This is known as the service recovery paradox. By showing customers that you hear their concerns and treat them seriously, you can gain customer trust and develop a positive reputation. 

At the end of the day, navigating disputes and refunds has little to do with who is right, and everything to do with your customer’s expectations. As a business owner, it’s your responsibility to balance business profitability with a positive customer experience. With that in mind, let’s look at some of the most common causes of disputes and refunds in the dropshipping industry.

Common Causes of Disputes and Refunds in Dropshipping

The customer ordered the wrong product

It can be easy for customers to accidentally order the wrong products, especially in the apparel industry. While the customer may be at fault, many other issues can contribute to this mistake. A complicated checkout process, unclear product descriptions, a lack of standardised measurements, or faulty UX design can all contribute to misplaced orders.

The customer receives the wrong product

Sometimes the customer will place the correct order but the supplier will ship the wrong product. In these circumstances, the responsibility lies with the supplier. The exact returns process and supplier responsibilities will be outlined in your established supplier agreements. However, as a dropshipping retailer, you’ll still be the face of the return process and will have to maintain clear and positive communication with your customers accordingly.

The product is damaged or defective

If the product is damaged in transit, the responsibility once again lies with the supplier and their courier partners. Regular occurrences can indicate issues with the supplier’s packaging, the reliability of their courier services, or challenges with warehousing. 

If a product is defective, responsibility lies with the manufacturer. However, dropshipping suppliers and retailers may still be liable for manufacturing defects, particularly when a defective product causes harm or injury. Make sure you’re fully aware of your legal obligations as a dropshipper before you start selling.

The product arrives late

Purchases can be time-sensitive. If a shipping deadline has passed, customers may not need the product anymore and make a return request. Other times, customers may be frustrated by shipping delays. This is why it's important to maintain transparency regarding shipping times and provide accurate tracking information on all orders.

Customer expectations vs reality

Sometimes a customer’s expectations of the product do not match reality. These expectations may surround how the product functions, how it looks, or whether it is enjoyed by the recipient. If this is a common reason for returns, you may consider reviewing your product descriptions and images. If these are incorrect, unclear or misleading, customers may be getting the wrong impression of your products.

The customer changed their mind

Sometimes, customers simply change their mind after purchasing. This can be buyer's remorse, a feeling of regret or anxiety after making a purchase. This often follows an expensive or luxury investment. To combat this, many stores implement policies that limit change-of-mind returns. 

The purchase was fraudulent

Ecommerce fraud costs businesses approximately $48 billion in revenue each year. Common types of fraud that may result in customer disputes include:

• Identity fraud or payment fraud, where unauthorised users gain access to an individual’s account or payment card to make purchases. This makes up over 71 per cent of all ecommerce attacks.

• Chargeback fraud, where customers make purchases using a credit card and then request an unfounded chargeback once the item is received. This can also occur when a customer initiates a chargeback without malicious intent, known as friendly fraud, which affects 34 per cent of merchants.

• Policy abuse, where customers exploit return and refund policies for personal gain.

• Wardrobing, a subset of policy abuse where customers buy wearable or usable items and return them after use. It’s estimated that 43 per cent of shoppers aged 16-24 have engaged in wardrobing.

To prevent ecommerce fraud, businesses need to ensure their website and payment gateways are secure and follow the Payment Card Industry Security Standards Council (PCI) security standards, as well as any legislation concerning privacy (such as The Privacy and Data Protection Act 2014). AI and automation software can also be used to identify patterns of fraudulent behaviour, but employees should still be adequately trained in fraud identification.

Strategies for Navigating Disputes

Practice effective communication 

Maintaining clear and transparent communication throughout the buying process is the key to ensuring customer satisfaction when dealing with disputes and returns. Customers want to feel that their concerns are being heard and acknowledged, and they expect dispute resolution to happen quickly. 75 per cent of consumers consider fast response times the most important attribute of the customer experience, and nearly half of all customers expect companies to respond promptly in 4 hours or less (yet the average response time is around 12 hours). Consistency across channels, knowledgeable staff and clear, consistent messaging are also top priorities for customers. Being able to provide prompt and helpful customer service across various channels is an excellent way to set your business apart from the competition and improve customer satisfaction.

Choose reliable suppliers

Reliable suppliers are pivotal in maintaining customer satisfaction and managing customer inquiries. Your choice of suppliers directly affects most aspects of the customer experience, starting with product quality. Trustworthy suppliers that deliver high-quality items will significantly reduce the number of return requests for defective or inferior products. Moreover, reliable suppliers are more likely to fulfil orders promptly and accurately. This helps meet customer's expectations regarding shipping times and reduces the number of disputes related to delayed or missing shipments. Additionally, cultivating a good relationship with reliable suppliers proves invaluable when addressing customer grievances, as they can promptly provide accurate information for efficient resolution. 

Write clear product descriptions and images

Many dropshipping retailers rely on product descriptions and images provided by their dropshipping suppliers. While these can be an excellent guide, top dropshipping sellers should be wary of simply copying and pasting product descriptions. You should always check for inaccuracies and modify product descriptions and images to reflect your brand voice. Ensure that your product descriptions and images are simple and give a clear idea of what the product is, does, and looks like. Make sure to include any specifications requested by your chosen ecommerce platform. If you’re using lifestyle images, put products in contexts that make sense to your target audience.

Are you experiencing writer’s block when it comes to product descriptions? Do you lack experience with photo editing or ad creation? There are plenty of free tools available for dropshipping businesses to create winning product descriptions and images. For more information, check out our blog “Best Dropshipping Tools in 2024 for Business Growth”.

Optimise order fulfilment

If shipping delays and missed deliveries are cutting into your profit margins, you need to optimise your fulfilment process. Even with reliable suppliers, fulfilment can be a challenge for ecommerce businesses due to external factors such as environmental disasters or geopolitical crises. Thankfully, there are many ways dropshipping companies can optimise their logistics to meet fulfilment obligations.

Utilise order fulfilment software

Businesses looking to grow and scale should invest in order fulfilment software. This technology allows retailers to manage inventory, automatically send and receive order information, and provide a more streamlined customer experience. You can find out more about order fulfilment technology on our blog “5 Recommended Order Fulfilment Software for Ecommerce in 2024”.

Optimise packaging

Work with suppliers to ensure products are packaged securely, and consider adding extra protective materials if necessary. Well-packaged items are less likely to arrive damaged, reducing the need for returns.

Set clear expectations

Where delays are inevitable, transparency is key. Over 80 per cent of shoppers want a clear delivery date for their online purchases. That’s why it’s crucial to provide accurate shipping information with purchases. Additionally, 82.4 per cent of customers want to track their deliveries in real time. Providing accurate tracking information increases trust in your brand by keeping customers involved in their order process, which can aid with customer satisfaction and retention. 

Documentation & Templates

Creating standardised documentation and keeping accurate records is crucial for ecommerce businesses to resolve customer disputes. By documenting your business policies, you set clear expectations for customers. Keep thorough records of order details, shipping information, and customer communications, and make this information available across all your customer support channels. This documentation can serve as evidence to support your case in the event of a dispute and supports consistent and accurate customer service. Establishing documented workflows for resolving customer disputes and complaints can also streamline the resolution process and provide valuable training resources for customer support staff. 

To keep their documentation consistent, many companies use templates. These templates can include scripted responses to common issues, standardised record collection methods, step-by-step procedures or policies. Templates provide structure and consistency to your record-keeping, helping your dropshipping business resolve disputes and complaints in a timely and satisfactory manner.

Template examples

Refund request response

Dear [Customer’s name],

Thank you for reaching out to us regarding your recent experience with [product] from our store. We sincerely apologise for any inconvenience caused and we appreciate the opportunity to address your concerns.

We have reviewed your complaint regarding [issue summary]. Please know that we are committed to providing excellent service, and resolving this issue is our top priority.

After careful consideration, we will [outline your compensation offer and any actions the customer must take]. 

If you have any further questions or concerns, please do not hesitate to contact us directly at [customer support email or phone number]. We are here to assist you and to ensure that your experience with our store meets your expectations.

Thank you for your patience and understanding. We value your business and look forward to serving you again.

Sincerely,

[Name of customer service representative]

[Your company name]

Resolution response (refund accepted)

Hi [Customer’s name]

Your refund is on its way!

This email is to confirm that your refund has been processed. It may take up to 10 business days for the funds to return to your nominated account. 

[Insert details of the customer’s order, including the total purchase and refunded amount]

Please contact us at [customer support email or phone number] with any further queries.

Sincerely,

[Name of customer service representative]

[Your company name]

Resolution response (refund rejected)

Hi [Customer’s name]

We are sorry to hear that your recent experience with [product] did not meet your expectations. Unfortunately, we are not able to process your refund request at this time. [Insert reason for rejecting the refund request]. We strive to uphold our refund policies consistently to ensure fairness to all our customers. For more information, you can view our returns policy here: [link to returns policy].

While we cannot approve your refund request, please know that we are here to assist you in other ways. If you have any questions or concerns regarding your order or if there is anything else we can do to help, please don't hesitate to reach out to us at [customer support email or phone number].

Sincerely,

[Name of customer service representative]

[Your company name]

Post-resolution feedback response

Dear [Customer’s name],

We hope this email finds you well. We would like to take a moment to follow up with you regarding your recent [insert complaint or issue here]. 

At [your company name], we make it a priority to provide exceptional customer service. We would greatly appreciate your feedback on your overall experience. 

Please take a few moments to fill out our feedback form [insert link] or leave a review on [your preferred social media channels or review website].

Thank you once again for choosing [your company name]. We truly value your business and look forward to hearing from you.

Sincerely,

[Name of customer service representative]

[Your company name]

Refund and returns policy

At [your company name], we are committed to providing you with a seamless shopping experience. If you’re not entirely satisfied with your purchase, we’re here to help. 

Returns

You have [insert returns window] to return an item from the delivery date. To be eligible for a return, [insert eligibility criteria].

Return process

[Outline your return process here. You can use the following as an example]

To return an item, please email [customer support email]. Once you have received your return confirmation, place the item in its original packaging and mail your return to [insert return address]. Please ensure the product is in eligible condition before posting.

Exchanges

If you would like to exchange your product for a different size or colour, please contact [customer support email]. Exchanges are subject to availability. 

Refunds

If your refund request is approved, we will initiate a refund to your original payment method. Please allow up to 10 business days for your funds to return to your account. 

Shipping and other fees

[Insert any return fees or charges here. You can use the following phrases as examples]

• Return shipping charges will be paid or reimbursed by [your company].

• Please note that you will be responsible for all return shipping charges, including a [insert fee type here] of [insert fee amount].

• A prepaid return shipping label will be provided for your convenience.

Exceptions

Please note that the following items cannot be returned or exchanged:

[Insert exclusions here].

For defective or damaged products, please contact [customer support email] to request a refund.

Contact us

If you have any queries or concerns regarding returns and refunds, please contact us at [customer support email].

Creating a clear refund policy

Creating a clear refund policy is essential for reducing disputes, improving the customer experience, fostering consumer trust and ensuring legal compliance. A clear and concise returns policy should include:

• Return conditions and eligibility: The criteria for eligible returns. This includes the circumstances under which a customer qualifies for a return and the state of the product. This may include only accepting unused or unopened items, original packaging, and proof of purchase.

• Return window: The timeframe within which returns are accepted, including the duration from the date of purchase or delivery. 

• Fees: If applicable, disclose any fees or deductions that may apply to returned items. This includes restocking fees, shipping fees, or other costs.

• Return process outline: Provide step-by-step instructions on how customers can initiate a return, including where to contact or how to request a return authorisation.

• Return methods: Explain how refunds will be processed, including the method of reimbursement (e.g., original payment method, store credit) and the timeframe for receiving the refund.

• Exclusions: List any items or categories that are not eligible for returns, such as personalised or custom-made products, perishable goods, or sale items.

• Customer support contact information: Provide contact details for customer support, including email address, phone number, and operating hours, for customers to reach out with questions or concerns.

Note: These conditions cannot override consumer protections as outlined by the Australian Competition and Consumer Commission. 

Here is our step-by-step guide to writing a clear and concise refund policy.

1. Check your supplier’s returns policies. 

Your supplier’s return policy has a direct impact on your return policies too. Suppliers have limitations and restrictions regarding return windows, product conditions and return fees. If your refund policies don’t match your suppliers, you may pay more out of pocket for returned products. If you use multiple suppliers, craft your refund policy to match your strictest supplier.

2. Do your research.

Research returns policies of other dropshipping businesses within your industry to understand common practices and customer expectations. Identify elements that align with your business goals and customer needs. Finally, check the relevant legislation for your country. 

3. Outline the returns process.

Determine how customers can initiate a return, including where to contact, what information to provide, and any required documentation. Outline the steps involved in returning the item, including packaging and shipping instructions. Where applicable, clearly state who will pay any restocking fees or deductions, and the circumstances under which customers may be charged. 

4. Draft your return policy. 

Write your policy. You can do this from scratch, use a template, or use policy generation tools to craft the perfect return policy for your business. Note: When using AI tools, make sure you manually review your policy to ensure it matches your local regulations.

5. Place your policy on your website.

Publish your returns policy prominently on your website, ideally in a dedicated section or as part of your terms and conditions. To ensure visibility, make sure you promote your returns policy during the checkout process and in customer communications.

6. Consider an FAQ section.

Adding an FAQ section to your returns and refunds policy helps customers quickly find answers to their most common questions and concerns related to returns, refunds and disputes. Common questions may include:

• How can I request a refund or exchange?

• How long is your returns window?

• How long does the refund process take?

• Can I return an item if I change my mind?

• How do I return an item purchased with [payment method]?

• Are any products excluded from the returns policy?

7. Review your returns policy regularly.

Regularly review your returns policies to ensure they are clear, aligned with your business objectives, and reflect current legislation.

Implementing Systems to Handle Disputes and Refunds

Online Dispute Resolution (ODR) systems

ODR systems use technology to facilitate dispute resolution between customers and businesses. These platforms centralise communication, allowing for transparent dialogue between parties involved in disputes and providing a structured framework for mediation and negotiation when necessary. ODR systems can integrate with payment platforms to expedite the resolution of payment-related disputes, and provide compliance support and access to legal resources as required. For example, Chargeflow is a fully automated system that helps businesses manage chargeback disputes and provides personalised response templates that are tailored to your unique store type and dispute reasons.

Automation tools

AI-powered automation can help businesses save valuable time and resources by tracking inventory, identifying potentially fraudulent orders, and personalising customer support responses at scale. These tools can also provide valuable insights into consumer behaviour thanks to AI's ability to collect and process massive amounts of data. For example, Zapier can combine data with over 6,000 apps, allowing you to build customised, automated workflows for maximum efficiency.

Live order tracking

Where possible, use couriers and shipping options that allow for automated, real-time order tracking details. This can help prevent disputes related to shipping delays or lost packages by providing transparency throughout the fulfilment process.

Customer support systems

Customer support tools can help businesses reach customers across multiple channels, in multiple formats, with all the information they need to assist. Tools like Zendesk allow for an omnichannel approach, ensuring customers can reach out from any channel with concerns or queries, while tools like Chatway can help you build a live chat bot to handle frequently asked questions and simple dispute resolution.

Summary

Disputes and returns are an inevitable part of business ownership, but they don’t have to affect your business’s profitability. Through effective communication, positive supplier relationships, clear documentation and optimised systems, you’ll make customer complaints and chargeback disputes a thing of the past.