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?
Considering store credit instead of a more traditional refund offers several advantages worth considering. While setting up a store credit system may require some effort, the benefits to your bottom line often justify the investment.
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. So, let’s get started!
Why You May Need To Offer Refunds In Your Online Store
Customers usually receive refunds when they return products. Many regions legally 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 store must accept returns within 30 days for any reason by default. Federal law mandates that refunds must be given for products that are defective or violate the terms of a sales contract.
While these laws vary by country and even state or territory, many companies choose to exceed the minimum requirements in the name of customer satisfaction. In the above example, a shop in New York may opt to accept a return after the mandatory 30-day period to avoid upsetting a customer.
This exemplifies the usefulness of store credit.
What Is Store Credit (And How Is It Different From Traditional Refunds)?
A traditional refund usually involves giving customers their money back in whatever form they provide. 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 returned to that card.
Companies typically do this to prevent fraud (such as turning gift cards into cash) and ensure there’s balanced bookkeeping.
Store credit is a more restricted type of refund. The business gives the customer credit for the value of the returned product or service. Customers can use this credit for future purchases from the same business. It’s like exchanging a product, but you don’t have to trade one item for another directly.
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 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.
Sometimes, the law might require giving cash or credit refunds. But when you want to keep your customers happy even if you’re not legally obligated, offering store credit is a great option.
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
- You can use store credit in marketing campaigns.
Having your own brand currency or store credit system is a resource that can be leveraged in several 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.
Additionally, this helps the business make more money and encourages customers to return for more shopping.
Retailers can also use store credit as incentives for marketing campaigns through 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 a few downsides to offering store credit instead of refunds when possible. If you’re not legally obligated to offer traditional refunds and you understand that operating a store credit program requires some bookkeeping, choosing the latter almost always benefits 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 you install it, you’ll have a dedicated page for monitoring the amount of store credit added, used, and unclaimed over 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 straightforward solution, especially for a free plugin.
Conclusion
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
In this article, we shared everything you need to know about store credit vs refund:
- Why You May Need To Offer Refunds In Your Online Store
- What Is Store Credit (And How Is It Different From Traditional Refunds)?
- The Benefits Of Offering Your Customers Store Credit vs Refunds
- How To Decide What Type of Refund Is Best For Your Store
- How To Start Offering Store Credit With Advanced Coupons
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!
