Can A Business Refuse A Refund For Custom Orders?

Custom orders can be exciting for your business, but they can also be stressful when a customer asks for a refund after you've already started making something just for them.

Maybe you've ordered materials, blocked out production time, engraved a name, printed a one-off design or built something to measurements that won't work for anyone else. It's fair to ask: can your business refuse a refund for a custom order?

The answer depends on why the customer wants the refund. Australian Consumer Law gives customers strong rights when something is faulty or not as promised, but it doesn't automatically let them change their mind just because a product was personalised.

Can A Business Refuse A Refund For A Custom Order?

Yes, you can usually refuse a refund for a custom order if the customer has simply changed their mind and your product terms and refund policy made that clear.

Under the Australian Consumer Law, which sits in Schedule 2 of the Competition and Consumer Act 2010, customers don't have an automatic right to a refund just because they:

• No longer want the item
• Ordered the wrong size, colour, wording or design
• Found a cheaper option elsewhere
• Changed their event date or plans
• Decided the item doesn't suit their taste, where you supplied what they approved

That's especially relevant for made-to-order goods because you may not be able to resell them. A personalised wedding sign, custom sofa cover or engraved jewellery piece may have little or no resale value once made.

That said, you can't use a custom order policy or customer contract to avoid your legal obligations. If the product has a problem covered by the consumer guarantees, your customer may be entitled to a repair, replacement, refund or other consumer guarantee remedy.

So the practical rule is this: you can say no to change-of-mind refunds, but you can't say no to the Australian Consumer Law.

What Counts As A Custom Or Personalised Product?

A custom or personalised product is usually an item made, altered or sourced specifically for one customer based on their instructions or specifications.

This can include products that are:

• Engraved with a name, date, logo or message
• Printed with a customer-supplied image or design
• Made to the customer's measurements
• Manufactured in a selected colour, fabric, finish or configuration
• Built as a one-off prototype or limited run
• Bundled or assembled for a customer's particular requirements

The more specific the item is to that customer, the stronger your position usually is when refusing a change-of-mind refund. A necklace with the name Ava engraved on it's harder to resell than a standard necklace in rose gold.

There are grey areas. If you sell a standard product but let customers choose from normal stock options, like a regular t-shirt in size M and blue, that may not feel truly custom. Your ability to refuse a refund may still depend on your terms and the reason for the refund request.

It's also worth separating customisation from customer approval. If the customer approved a final proof, mock-up or specification sheet, keep that record. It can be very helpful if they later say the finished item isn't what they ordered.

When Do Consumer Guarantees Still Require A Refund?

You may still need to give a refund if the custom product fails to meet the consumer guarantees under the Australian Consumer Law.

Consumer guarantees apply to most goods and services supplied to consumers in Australia. For products, the key guarantees include that goods must be:

• Of acceptable quality
• Fit for any purpose the customer made known to you
• Matching the description, sample or demonstration model
• Delivered within the agreed time, or within a reasonable time if no time was agreed
• Free from hidden defects that make them unsafe, unusable or not durable enough

If there's a major failure, the customer can usually choose a refund or replacement. A major failure might be where the item is substantially unfit for purpose, unsafe, very different from the description, or a reasonable customer wouldn't have bought it if they'd known about the problem.

If the problem is minor, you usually get the chance to fix it within a reasonable time. That could mean repairing the item, remaking part of it, replacing it or offering another practical solution.

Example: A Personalised Cake Topper

Say you run an online partyware store in Adelaide. A customer orders a $120 acrylic cake topper with the wording Happy 40th, Nina. They approve the proof, you make it exactly as approved, and then they ask for a refund because the party theme changed.

In that situation, you can usually refuse a refund if your terms clearly say personalised items aren't refundable for change of mind.

Now change the facts. The customer approved Nina, but the topper arrives saying Nini. That's not what they ordered. Depending on timing and the impact on the event, you may need to urgently remake it, provide a refund, or offer another remedy that properly fixes the problem.

Can You Keep A Deposit If The Customer Changes Their Mind?

Yes, you can often keep a deposit if the customer cancels a custom order, but the amount needs to be fair and supported by your terms and actual business costs.

Deposits are common for custom work because you may need to buy materials or reserve production time before the final product is ready. The safest approach is to make the deposit clearly connected to your costs and commitment.

For example, if you take a $600 deposit on a $2,400 custom dining table, and the customer cancels after you've spent $450 on timber and three hours preparing drawings, it may be reasonable to keep all or part of the deposit. If you haven't started work, haven't ordered materials and can easily fill the production slot, keeping the whole deposit may be harder to justify.

Be careful with wording that says all deposits are non-refundable in every circumstance. That can be risky if it goes beyond what is reasonably needed to protect your business, especially where your customer is a consumer or small business.

Australia's unfair contract terms regime can also apply to standard form contracts with consumers and small businesses. Since November 2023, courts can impose significant penalties for unfair terms. For goods and non-financial services, the ACCC and state or territory consumer protection agencies can take action over unfair contract terms. A term may be unfair if it causes a significant imbalance, isn't reasonably necessary to protect legitimate interests, and would cause detriment if relied on. ASIC's unfair contract terms role generally relates to financial products and services.

A more balanced clause might say the deposit is non-refundable to the extent needed to cover materials ordered, work performed, administration and other reasonable losses caused by cancellation. Your lawyer can tailor this so it works for your ordering process without overreaching.

How Should Your Custom Order Terms Be Written?

Your custom order terms should be clear, specific and honest about what is refundable, what isn't, and what happens if something goes wrong.

A vague line like no refunds on custom items is rarely enough on its own. It may be fine as a signpost, but your full terms should explain the details in plain English.

Here's a useful outline you can adapt with legal help before using it with customers:

1. Product Description: Explain what the customer is ordering, including size, materials, colours, wording, quantities and any special features.
2. Customer Approval: State when the customer must approve proofs, mock-ups, measurements or specifications, and what approval means.
3. Changes After Approval: Set out whether changes are allowed after approval, any extra fees, and whether changes may affect delivery dates.
4. Payment And Deposits: Explain the deposit, when the balance is due, and what costs the deposit is intended to cover.
5. Cancellations: Describe when the customer can cancel and how refunds are calculated based on work completed and costs incurred.
6. Change-Of-Mind Refunds: Say that custom or personalised items aren't refundable for change of mind, subject to the Australian Consumer Law.
7. Consumer Guarantee Remedies: Confirm that nothing in your terms limits rights under the Australian Consumer Law.
8. Delivery And Delays: Set expected timeframes, what happens if the customer delays approval, and how you'll manage supplier or courier issues.
9. Customer-Supplied Content: Cover spelling, image quality, intellectual property permissions and responsibility for content the customer provides.
10. Dispute Process: Explain how customers should raise issues, what evidence you may ask for, and how you'll assess a remedy.

Templates can be a helpful starting point, but custom order businesses vary a lot. A furniture maker, embroidery store, beauty product formulator and 3D printing studio won't need exactly the same terms.

What Should You Do When A Refund Request Comes In?

You should first work out whether the customer is complaining about a legal problem with the product or simply asking to change their mind.

Try not to reply while frustrated. A calm, structured response can protect the relationship and your position if the issue escalates to a regulator such as the ACCC or your state or territory fair trading body.

Step 1: Gather The Order Records

Pull together the documents and messages that show what was agreed. This might include:

• The product listing or quote
• Your terms and refund policy at the time of purchase
• Proofs, mock-ups or specification sheets
• Customer approvals and change requests
• Photos of the finished product before dispatch
• Tracking details and delivery records
• Receipts for materials or supplier costs

Step 2: Identify The Reason For The Refund

If it's change of mind, point the customer to the custom order terms they accepted and explain why the item can't be refunded or resold.

If the customer says the item is faulty, late, not as described or unfit for purpose, assess the issue under the consumer guarantees. Ask for photos, videos or a clear explanation if you need more information.

Step 3: Offer The Right Remedy

If there's a minor issue, offer a practical fix within a reasonable time. If there's a major failure, a refund may be required even though the product was custom made.

Keep your written response polite and specific. For example: We understand you're disappointed that the event colours changed. Because this banner was printed with your approved wording and colours, and there's no fault with the product, our custom order terms don't provide a refund for change of mind.

If the amount is significant, the facts are messy or the customer is threatening a complaint, it's worth getting advice and following a clear complaints handling process before locking in your final response.

Key Takeaways

• You can usually refuse a refund for a custom order where the customer has simply changed their mind.
• You can't exclude the Australian Consumer Law, even for personalised or made-to-order products.
• A clear approval process is one of your best protections when the customer later says the item wasn't what they wanted.
• Deposits should be fair, clearly explained and linked to your real costs and losses.
• Your custom order terms should cover approvals, changes, cancellations, deposits, delivery and consumer guarantee remedies.
• When a refund request comes in, check the records first and respond based on the reason for the request.

If you'd like help with your custom order terms, refund policy, customer approval process or ecommerce trading terms, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.