Returns are a necessary inconvenience whenever you sell products, even online. It’s important to make the process as efficient and hassle-free as possible. So when it comes to issuing a refund, which method is better: store credit vs refund?
Offering store credit in lieu of a more traditional refund has a few advantages worth considering. It may take a little work to set up a store credit system, but the benefits to your bottom line are often worth it.
In this article, we will explain what store credit is and why you should consider it. Then we will compare the benefits of using store credit vs a refund system. Let’s get started!
Why You May Need to Offer Refunds in Your Online Store
Refunds usually occur when customers return products. By law, many regions require refunds, at least under certain conditions.
For example, in New York, a store is legally obligated to post its refund policy. If no policy is posted, the default is that it must accept returns within 30 days for any reason. Beyond that, federal law dictates that refunds must be given for products that are defective or otherwise break the terms of a sales contract.
While these laws vary by country and even state or territory, many companies choose to go above and beyond the minimum requirements in the name of customer satisfaction. In the above example, a shop in New York may choose to accept a return after the required 30-day period, rather than upset a customer. This is a great example of when store credit can come in handy!
What Is Store Credit (And How Is It Different From Traditional Refunds)?
A traditional refund usually involves giving a customer their money back in whatever form they provided it. In other words, a customer who paid cash for an item will receive cash when they return it, whereas a buyer who paid with a credit or gift card will have the balance put back onto that card. This is usually done to prevent fraud (turning gift cards into cash, for example) and it also ensures balanced bookkeeping.
Store credit is a more restricted type of refund. The value of the returned product or service is granted to the customer for use in later purchases from the same business. This is similar to a product exchange, though it doesn’t need to be done on a one-to-one basis. You might offer a customer $20 in store credit in exchange for an item they don’t want, and they can use that $20 on anything else in your store (at any time).
Examples of store credit include:
- Gift cards
- Return credit
- Account credit
- Company currency
Store credit is usually tracked digitally. This can be through gift cards, an online account, or even an in-store record system.
Some stores have even branded their own form of currency that functions as store credit. Some popular examples include:
- CVS ExtraCare Bucks
- Kroger Fuel Points
- Discover CashBack
- PlayStation Virtual Wallet
- Kohl’s Cash
These programs tend to have additional rules and restrictions, but can function as a replacement for a standard refund.
The Benefits Of Offering Your Customers Store Credit vs Refunds
There are some significant benefits to offering store credit in place of a traditional refund. While in some cases you may be obligated to offer a cash or credit refund by law, store credit is a great alternative in situations where you are not required to do this, but still want to appease the customer.
Some notable advantages to using store credit over a traditional refund are:
- Customers need to return to your store to use it
- You do not lose revenue (only inventory)
- Customers may be encouraged to create an account with your company
- Unused credit is essentially free money
- Store credit can be used in marketing campaigns
Having your own brand currency or store credit system is a resource that can be leveraged in a number of creative ways. Kohl’s Cash is a great example, motivating customers to spend more than they normally would to receive store credit for a future purchase. This simultaneously increases revenue and keeps customers coming back to shop.
Store credit can also be used as incentives for marketing campaigns via prizes, referral program rewards, customer loyalty programs, birthday gifts, and purchase limit incentives. In each of these cases, you can offer customers cash value at your business without actually spending anything.
How To Decide What Type of Refund Is Best For Your Store
There are few downsides to offering store credit in lieu of refunds when possible. As long as you’re not legally obligated to offer traditional refunds, and you understand that operating a store credit program requires some bookkeeping, the latter is almost always beneficial to your bottom line.
Because of the legal and customer service obligations of refunds, in many cases you will end up doing both. In situations where you are required to give traditional refunds by law, or in cases where you want to offer them to appease a customer, refunds can be appropriate. In most other cases, store credit is much more cost-effective, and creates opportunities that traditional refunds simply don’t.
To sum up, here is a comparison of the benefits of traditional refunds vs store credit:
|Traditional Refunds||Store Credit|
|May be required by law||No loss of revenue (more cost-effective)|
|May be preferred by some customers||Customers have to come back to use it|
|Usually simpler bookkeeping||Creates marketing opportunities|
How to Start Offering Store Credit with Advanced Coupons
If these benefits are convincing enough for you to want to create a store credit program, Advanced Coupons offers an easy solution for implementing and managing one. Along with tools for coupons and a loyalty program, the free version of our plugin even includes a system for tracking store credit:
Once it’s installed, you’ll get a dedicated page for monitoring the amount of store credit added, used, and unclaimed over a period of time. You can also view and adjust the balance of credit for each customer in your system.
This feature can also integrate with your checkout and refund process, to automatically apply store credits where applicable. All in all, it is a very straightforward and easy solution, especially for a free plugin.
While it can be tempting to simply say “no refunds”, laws and best practices generally require some allowance for returns. The simplest solution may be to just offer traditional cash or credit refunds.
However, there are advantages to providing store credit instead. These include:
- No loss of revenue
- Customers returning to shop more
- New marketing opportunities
Best of all, if you want to set up your store credit system, our free Advanced Coupons plugin handles most of the work for you.
Do you have any questions about offering store credit or refunds for returned items? Let us know in the comments section below!