Handling Dropshipping Returns & Refunds (Free Template)

Returns and refunds are a frustrating yet inevitable part of running a dropshipping business. How you handle them depends on the type of dropshipping model you use and your suppliers policies.

This article offers strategies for managing returns efficiently and minimizing their frequency because excessive returns can quickly eat into your profits.

How to Manage Returns and Refunds with AliExpress Dropshipping

Dealing with returns and refunds when dropshipping can be as simple or as complicated as you want to make it.

There are many possible scenarios and many possible ways to handle each of the scenarios but this is the simplest solution. I’ll go through how to handle if a customer does meet one of the requirements and is eligible for a return or refund.

There are 4 main possibilities where the customer will be eligible for a refund:

• The product was lost in transit and never arrived to the customer.
• The product was shipped but arrived to the customer damaged.
• The wrong product was shipped, this may be the completely wrong product or the wrong variant such as incorrect color or size.
• The product is defective and either doesn’t work or doesn’t work as advertised.

I’ll go through how I handle each of these situations:

1. The Product is Defective or Faulty

If the item falls outside the product guarantee stated in your refund policy, send an email apologizing and explaining that you’re unable to offer a refund as it goes against your policy. If the customer insists on a refund, it’s up to you to decide if it’s worth offering one to prevent negative reviews.

Personally, if the request is only a few days beyond the guarantee period, I might offer a refund. However, if it’s more than a week past, I usually decline.

Be mindful of how you phrase your request to avoid sounding accusatory. Try to come across as concerned and empathetic rather than suspicious. Even if you suspect dishonesty, remain polite throughout the conversation.

If the customer provides valid proof, ask if they would prefer a refund or a replacement. Apologize for the inconvenience and let them know they don’t need to return the defective product; they can keep it as a gesture of goodwill.

However, if you notice people abusing this policy, you may require them to return the item to qualify for a refund. The inconvenience of shipping it back often discourages dishonest claims.

Additionally, some customers might mistake a working product for a faulty one due to unfamiliarity with how it functions. If you notice repeated confusion with specific items, consider adding clearer instructions or FAQs on your website. This proactive step can reduce unnecessary customer service inquiries and returns.

Below is an example of a refund policy for e-commerce store Houndsy, it’s simple but covers themselves for customers talking advantage.

2. The Supplier Ships the Wrong Product

This situation is inevitable and will happen from time to time. While shipping the completely wrong item is rare, sending the wrong variant—such as the wrong color, size, type, or material—is more common, especially with products that offer many variations on platforms like AliExpress.

If this occurs, politely ask the customer to send a photo of the incorrect item. Once they do, apologize and ask whether they prefer a refund or a replacement. Whichever option they choose, process it immediately to maintain trust and satisfaction.

To compensate for the inconvenience, let the customer keep the incorrect item and consider offering a discount code for future purchases as a goodwill gesture.

3. The Customer Changed their Mind

How you handle customers who change their minds is entirely up to you. If your return policy states that “change of mind” is not a valid reason for a refund, you have a few options:

1. Issue a Refund Anyway – Apologize, provide the refund, and treat it as a small loss.
2. Request a Return at the Customer’s Expense – Offer the refund, but only if they send the item back in its original condition, with shipping costs covered by them.
3. Enforce Your Policy – Politely remind the customer that your policy does not allow refunds for change-of-mind purchases.
4. Compromise – Offer a partial refund or a discount code for future purchases to keep the customer happy.

This scenario isn’t very common, and if the product’s value is low, it might be easier to just apologize and issue the refund to avoid negative reviews and unnecessary stress.

Some businesses offer refunds or coupons to maintain goodwill, hoping for future sales. I prefer not to retain customers prone to changing their minds, it saves hassle in the long run.

4. The Customer Claims the Product Never Arrived

Shipping times from China can vary due to multiple factors, often leading customers to inquire about their order status or claim it never arrived.

If the shipment is still within the delivery timeframe stated in your refund policy, politely ask the customer for patience. Provide the tracking number and explain that shipping delays sometimes occur.

If the delivery is outside your promised timeframe, apologize and let the customer know you are working to resolve the issue. Ask if they’d prefer to wait a little longer or receive a refund or replacement. If they choose a refund or replacement, process it immediately in line with your policy.

In cases where the customer claims they didn’t receive the item, but the shipping company confirms delivery, you have two options:

1. Stick to Your Policy – Politely decline the refund and provide shipping documentation.
2. Issue a Refund Anyway – To avoid potential disputes and maintain goodwill, you may choose to refund the order. Fortunately, most customers are not looking to scam you, especially for low-cost products.

With Dropshipping, Where Does the Customer Ship Returns?

When dropshipping with suppliers in China, it’s often not practical to have customers return items there, especially for low-cost products. Shipping a $10 item back isn’t worth the time, money, or hassle.

So, where should customers send returns? Here are a few options:

1. Your Home Address

You can have returns sent to your home, though this isn’t ideal for everyone. While it saves money, it’s less professional and may feel like a privacy concern. However, remember that personal addresses used to be widely available in phone books—it’s ultimately a matter of comfort.

Check out my article on what address you should use for dropshipping.

2. PO Box

If privacy is a priority, consider getting a PO Box. It provides a secure, anonymous return address. However, PO Boxes have size limitations, so this option may not suit larger products. It also comes with a monthly fee, but the added professionalism can be worth it.

3. Virtual Office

A virtual office gives you a business address that adds a layer of professionalism. They can collect mail for you, forward it to your home, or you can pick it up. Some services even provide phone receptionists to answer calls on your behalf. This is a more costly option, but it can enhance your business image.

What Can You Do With Returned Products?

If you’re receiving multiple returned items, here are several ways to handle them:

1. Discard Damaged Items – If the items are broken or unsellable, it’s best to throw them out.
2. Use for Replacements – If the items are in good condition, you can ship them directly to customers with order issues for faster resolution.
3. Resell to Recover Losses – List unwanted returns on platforms like eBay or Facebook Marketplace to recoup some costs.
4. Donate to Charity – Consider donating usable items to a local charity or nonprofit organization.
5. Gift to Friends and Family – Offer the items to friends or family members who might appreciate them.

How to Get Refunded By Your AliExpress Supplier

Once your customer provides photo or video proof that the product is faulty or defective, you may be able to request a refund from your supplier.

To do this, follow these steps:

1. Log into Your Account at the top of the supplier’s page.
2. Go to “My Orders.”
3. Under the orders section, click on the “Disputes” tab.
4. Find the relevant product and click “Open Dispute.”
5. Select the refund option and fill out the required information, attaching the customer’s proof.

Whether or not you pursue a refund is your call. If the product is only worth a few dollars, it might be more practical to absorb the cost and move on. This way, you can avoid the time and effort of the dispute process.

Refunding Customers on Shopify

If you’re using Shopify to issue a refund, the process is straightforward:

1. Go to Orders in your Shopify admin panel.
2. Select the order you want to refund.
3. Click “Refund” at the top of the order page.
4. Choose to either issue a full or partial refund.
5. Once you’ve decided on the amount, click the “Refund” button on the right.

Keep in mind that depending on the customer’s payment method, it may take a few days for the refund to appear in their account so be sure to inform them.

If you’re not using Shopify, below are links to other platforms refund tutorials.

• How to refund customers on Wix
• How to refund customers on WooCommerce
• How to refund customers on BigCommerce
• How to refund customers on SquareSpace

Dealing with Dropshipping Refunds with Domestic Suppliers

Handling refunds and returns with domestic dropshipping suppliers differs significantly from working with AliExpress suppliers. AliExpress typically involves suppliers in China and lower-cost products, while domestic suppliers often offer higher-quality, more expensive items.

The main difference lies in product value. For a $10 product, it’s often easier to absorb the loss and keep the customer happy. However, with a $200 product, the stakes are higher, and each issue must be carefully handled to avoid significant losses.

Working with domestic suppliers also provides advantages in communication, faster shipping times, and shared regulations. Building relationships with local suppliers is generally easier and more reliable than with overseas suppliers on AliExpress, thanks to fewer language barriers and aligned business practices.

Supplier Refund Contracts

When dropshipping with domestic suppliers, each will have its own refund and return policies. These terms are usually outlined in the contract you sign when you first partner with them. Be sure to review the supplier’s return policy carefully before committing.

If a supplier does not accept returns, I’d recommend reconsidering the partnership. Personally, I avoid working with suppliers who refuse returns because listing “no returns” on my website can make the business appear untrustworthy. However, this decision is up to you.

There are valid exceptions—certain items like underwear or swimwear typically cannot be returned for hygiene reasons. In fact, if a supplier were to accept returns for these products, I’d find it concerning.

Since each supplier’s return policy will vary, your own store’s policies need to align with the terms of the suppliers you’re using. It’s also a good idea to implement a shorter return window—this gives you some flexibility to accommodate late return requests without causing logistical headaches.

Change of Mind vs. Faulty Products

In most cases, your supplier won’t accept returns for customers who simply change their minds and you shouldn’t either. Offering refunds in these situations, when your supplier doesn’t, could leave you covering the cost.

To avoid this be as transparent as possible. Clearly state your policy on refunds for change-of-mind returns in your refund policy, FAQ page, and possibly even on the product page. It’s frustrating to deal with these requests, always remain polite as rudeness can damage your business in more ways than one.

If a product arrives faulty or damaged, start by politely requesting a photo or video from the customer to verify the issue. Once confirmed, you have several options depending on the type of problems.

• Non-Functional Product: Ask the customer to return it, and have your supplier send a replacement.
• Broken Part: Contact the supplier to send only the replacement part, if possible.
• Cosmetic Defects (e.g., scratches): Offer the customer a partial refund if they’re willing to keep the product as-is. Then, discuss the situation with your supplier to see if you can receive credit or reimbursement.
• Incorrect or Misleading Product Description: Offer a partial refund if it doesn’t match the product description. If the customer still isn’t satisfied, provide a full refund and arrange for the item to be returned to the supplier. Most suppliers will honor refunds for products returned in original condition.

Refund Policy Template for a Dropshipping Business

Below is an example of a general refund policy page for a dropshipping store. Feel free to steal this template but be sure to edit it for your specific business. If you want a more detailed refund page as well as other Shopify page templates, be sure to check out my members area.

1. Returns & Refund Eligibility

• We accept returns within 30 days of delivery.
• To be eligible, the item must be unused, in its original condition, and in the original packaging.

2. Refund Process

• Contact us at [Your Email Address] to initiate a return or refund. Please provide your order number and a brief reason for the return.
• Once your return is received and inspected, we will notify you of the approval or rejection of your refund.
• If approved, your refund will be processed, and a credit will automatically be applied to your original payment method within 5-10 business days.

3. Non-Refundable Items

• Certain items, such as custom or personal care products, are non-refundable.
• Items marked as final sale cannot be returned or refunded.

4. Damaged or Defective Items

• If you receive a damaged or defective product, please contact us within 7 days of delivery with photos of the damage. We will arrange a replacement or refund as appropriate.

5. Shipping Costs

• Return shipping costs are the responsibility of the customer, unless the product is defective or incorrect.
• Shipping fees are non-refundable.

6. Late or Missing Refunds

• If you haven’t received your refund, please first check with your bank or credit card company, as it may take some time for the refund to post. If you’ve done this and still haven’t received your refund, contact us at [Your Email Address].

Refund Policy Laws!

Each country and sometimes each state has different laws when it comes to refunds and returns. So don’t assume you can just say screw the customer, it’s my online store and I’m not giving anyone a refund for any reason.

There are laws in place to stop people from taking advantage of others. These laws differ in a variety of ways so be sure to check them out before writing your refund policy.

United States

Federal law states that retailers are required to accept returns if the item is defective. They also state a 3-day cooling-off period is allowed for purchases over $25.

When it comes to state law, each state has slightly different policies in place regarding refunds. Many require retailers to have their refund policy prominently displayed at the place of purchase.

Canada

Canada is very relaxed about refunds and returns policies. There is no law stating that a retailer is required to accept refunds and returns to customers. This means each retailer’s policies can vary drastically, as a customer it’s worth checking their policies before making a purchase.

Each state may have specific laws which allow customers to return specific products under certain situations.

Click here for more information on Canada’s refund policies.

UK

Retailers must offer a refund for products that are faulty, not as described or don’t function the way it is supposed to. They don’t have to offer a refund if the customer knew the product was damaged when they purchased it, they damaged it themselves or they no longer want the item.

Click here for the UK’s government website in regards to offering refunds.

Australia

In Australia, the law states retailers must offer returns and refunds if the product has any major problems. Retailers don’t have to provide refunds to customers who simply change their mind and don’t want the product anymore.

Click here for Australia’s refunds and returns policies.

Conclusion

Even with all the above information, dealing with refunds and returns doesn’t need to be a complicated process. I have tried to cover every possible situation that could arise, however, most of these situations will never happen.

It’s more of the unenjoyable and annoying aspect of running your own dropshipping store. Over time, you’ll begin to see which issues keep arising and you’ll learn how to handle each situation correctly and how you can change aspects of your business to help reduce the number of customer complaints.

Once you know how to handle each situation, you can look at outsourcing the customer service side of things and have a virtual assistant take care of all your refunds and returns. This will save you a lot of time to focus on other parts of your business.