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How to LEGALLY Issue A Refund

How to LEGALLY Issue A Refund

As a business owner, you may, unfortunately, encounter situations where you have to issue refunds to clients. It could be because of a mistake on your end or because of a cancellation of a service or event. Regardless of the reason, it's essential to handle the refund process correctly. In this blog post, we will discuss the difference between a cancellation contract and a refund contract, as well as how to issue refunds correctly.


Cancellation Contract vs. Refund Contract

First, let's differentiate between a cancellation contract and a refund contract. A cancellation contract is used when a service or event is canceled before it takes place. This type of contract will terminate and replace the previous service contract, along with any verbal contracts made with the client. Within the cancellation contract, you must clearly state what will happen to any fees paid by the client. This could include a partial refund, no refund, or full refund, depending on the situation.

On the other hand, a refund contract is used after the service or event occurs when usually an error happens on your part and you have decided to issue some type of refund monetarily to the client. It covers situations such as if the client did not receive the service they paid for or is unsatisfied with the service. In the refund contract, you will clearly state how much you are refunding the client. This could include a partial or full refund, depending on the situation. It also usually includes language about the parties agreeing to keep the refund terms confidential (Remember, you can't have a clause about non-disparagement in hopes to prevent a bad review due to consumer protection laws. But, a 'bad' review is different than a 'false' one, and any type of defamation online against your business when a review is completely false is illegal and you can initiate legal action without needing any clause like this in a refund contract).

Also, before you use a refund contract or refund a client it is important to check with your insurance carrier to see if it is worth it to make a claim. If the refund is more than your deductible it could definitely be worthwhile.


Mutual Release of Claims Clause

Both the cancellation contract and refund contract should include a "Mutual Release of Claims Clause." This important clause ensures that the client cannot sue you for any current or future claims relating to your original contract AND the dispute at hand. This clause is essential to include in the contracts and have your client agree to (and sign!) before sending over any type of refund amount.


The only exception to not getting a signed cancellation contract

The one exception to this is when you are canceling on your clients. If you have to cancel the contract because you cannot find another alternative professional to take your place or if you have a family emergency, you should refund the entirety of your fees, including the retainer. Sometimes you can subtract any services already rendered, but oftentimes it's best to just give them a full refund to avoid future legal liability. Legally speaking, the law requires that you put the client back in the same position they were prior to contracting with you. Also, in this case, if you’re canceling you would still want to send them a cancellation contract, but if they don't sign it, you should still refund them the amount.

As a business owner, it's crucial to handle refunds correctly to maintain a positive relationship with your clients. Don't let a refund request turn into a legal nightmare. Purchase a cancellation contract or refund contract from The Legal Paige today and ensure that your business is legally protected. Act now to secure your peace of mind!



THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.

See our full disclaimer here.

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