How to Handle Order Cancellations: A Fair Policy for Small Businesses

Short answer: a fair order cancellation policy refunds what the customer paid, minus what you have already lost. Set a refund for each stage of the order. For example, before you start, after you buy materials, near the due date and when it is finished. Write it down, send it before the customer pays, and refund quickly and in writing when someone cancels. Remember that card fees are usually not returned, so plan for them.

Every seller who takes orders gets a cancellation sooner or later. The party is called off. The customer found a cheaper option. The budget changed. Most of the time it is nobody’s fault. The trouble starts when nobody agreed what happens next.

This guide shows how to set a cancellation policy that covers your costs and still feels fair to the customer. It shows a worked example with numbers, and what to say when a customer cancels. It also explains refund fees, card disputes and the rules in the US and the UK. It is general information from a founder, not legal advice.

If you need the full set of order terms, start with our guide to custom order terms and conditions. This post goes deeper on one part of it: the cancellation.

1. Work out what you lose at each stage

A cancellation policy is really a list of costs. The question is simple. If this customer cancels today, what have you spent that you cannot get back?

For most orders, the answer grows over time:

• Before you start, you have spent nothing. You may have turned away another order, but you can usually fill the date.
• After the design, you have spent hours on sketches, calls or samples.
• After you buy materials, you have spent money on things you may not use again. Fabric cut to size, a printed topper or a special stone is hard to reuse.
• Close to the due date, you have done most of the work. You also cannot sell that date to someone else.
• When the item is finished, the work is done. A custom piece is often hard to sell to anyone else.

Orders also stay open long enough for plans to change. In WISMO’s order data, the median order had 7 days between the day it was created and its due date. One order in ten ran 22 days or longer.

7 days

That is a week or more in which the customer can change their mind. Your policy decides what each stage of that week costs.

2. Turn your costs into a refund for each stage

Now put numbers on it. Here is a worked example for a custom celebration cake. The figures are illustrative, not from a real seller.

The cake costs $360. The baker takes a deposit of $180, which is half the price. Design time is worth $30 an hour to her. She spends 2 hours on the design, and $65 on a printed topper and special ingredients.

This method has two good effects. The customer can see why they get back less as time goes on. And you never keep money you did not lose. This matters in the UK. The CMA’s guidance on unfair terms says a deposit kept in full should not normally be more than a small percentage of the price. So keeping only your real costs is also the safer choice.

How big should the deposit be? Big enough to cover what you would lose at the stage when most people cancel. In WISMO’s data, the median seller takes a first deposit of 50% of the price. But seller medians run from 8.0% to 97.4%, so there is no standard. Our deposit guide shows how to work out yours.

Median 50%

Another common way is to set cut-offs by days before the due date. For example, a full refund 10 or more days before. That is easier to explain, but check that the days match when you really buy materials and start work.

3. Write the policy in plain words

Keep the policy short enough to paste into a message. Use the same policy for every customer. Put the details that change, such as the price and the due date, in each order confirmation.

Line 9 is a promise, so pick a number of days you can keep. The last line matters too. A cancellation policy covers a change of mind. It does not let you keep money when the problem is on your side.

Send the policy before the customer pays the deposit, and ask them to reply that they agree. Keep that reply with the order. The terms and conditions guide explains why this proof matters if a card payment is disputed.

4. Offer a new date before a refund

Many cancellations are really a change of plans. The event moved, money is tight this month, or the customer is not sure about the design. Before you talk about money, ask if something else would help:

• A new date. Move the order to a later date, if you have space.
• A smaller order. Make a simpler version, and use what you have already bought.
• A different item. Put what they paid toward something else they want.

Offer these as choices, never as the only answer. If the customer wants their money back and your policy gives a refund, give the refund. Store credit is fine when the customer picks it. It is not fine when you force it. And in some cases the law says it does not count as a refund at all (see step 7).

5. When a customer cancels, reply in writing

When a customer tells you they want to cancel, follow the same steps every time:

1. Reply the same day, even if it is only to say you received the message.
2. Stop work and spending on the order, so your costs do not grow.
3. Check what they agreed to, and find the stage the order is at.
4. Work out the numbers. List what you spent, and what you will refund.
5. Send it in writing, with the refund amount and the date it will reach them.
6. Refund on time, and send a short message when it is done.
7. Close the order in your records as cancelled, with the refund noted.

Here are three messages you can adapt. They are illustrative examples, not messages from a real seller.

Keep the tone calm, even if the customer is upset. Show the numbers. A customer who understands the refund is much less likely to fight it.

6. Know what a refund costs you

A refund is not free for you, and it is not instant for the customer. Plan for both.

Card fees are usually not returned. Stripe says its processing fees on the original payment are not returned when you refund. Square’s help center says the same. PayPal says there is no fee to make a refund. But the fees you paid to receive the payment are not returned.

Stripe’s standard US card rate is 2.9% + 30¢. So on a $180 deposit paid by card, you paid $5.52 in fees. If you refund the full $180, you lose that $5.52. So some sellers keep a small fee, such as $10, even on an early cancellation. If you do this, name the fee in advance.

Refunds take time to arrive. Stripe says a refund usually reaches the customer 5 to 10 business days after you send it. Square says it can take 4 to 14 business days in total. Tell the customer this, so they do not think you forgot.

Refund the same way the customer paid. Stripe only sends a refund back to the original payment method. It cannot go to a different card or bank account. For payments outside a card system, the money will not come back by itself. For example, Zelle says a payment cannot be cancelled once the person receiving it is enrolled. So you refund a Zelle or cash payment by sending the money back yourself. Keep a screenshot or receipt of that refund.

7. When you are the one who cancels

Sometimes you have to cancel. You get sick, a supplier lets you down, or you cannot do the job well in time. In that case, refund everything the customer paid, including the deposit. Do not keep money for materials or work when the customer did nothing wrong.

The rules agree. In the US, the FTC’s mail order rule covers goods ordered online, by phone or by mail. If you cannot ship on time, the customer can cancel for a refund. The FTC says you must pay that refund within seven working days. That applies to payments by cash, check, money order or a credit card from a bank. It also says credit toward a future order, a voucher or scrip does not count as that refund.

In the UK, a customer who cancels a distance sale within their legal rights must be refunded within 14 days. Regulation 34 of the Consumer Contracts Regulations 2013 also says you cannot charge a fee for making that refund. Remember that this right to cancel does not apply to goods made to the customer’s own specification. Our terms and conditions guide explains that exception.

Is the order late rather than cancelled? Then see our guide on what to tell a customer when an order is late.

8. If the customer disputes the charge

A customer who paid by card can ask their bank to reverse the charge. In the US, this is set by the Fair Credit Billing Act. The FTC says it lets cardholders dispute charges for goods not delivered as agreed. The customer has 60 days from the first bill that shows the error.

Card networks give even longer. Stripe says cardholders can usually start a dispute within 120 days of the payment. When a dispute starts, Stripe takes the disputed amount and a dispute fee from your balance. Its US dispute fee is $15, and it does not return that fee even if you win. PayPal lists a standard dispute fee of $15 too. While the dispute is open on Stripe, you cannot refund the payment outside the dispute.

So the best defense is to avoid the dispute:

• Reply fast and fairly. A customer who gets a quick, fair answer has less reason to go to the bank.
• Offer the refund your policy gives, before the customer goes to the bank.
• Keep your evidence. That means the policy the customer agreed to, your messages, receipts for materials and photos of the work.

If a dispute does start, answer it with that evidence by the deadline. Some banks first send a request for information. Stripe warns that if you do not answer it, it can turn into a chargeback you will likely lose.

Common mistakes

• “All sales are final” with no detail. It sounds strong, but it does not explain anything. It also does not remove rights the law gives the customer.
• Keeping more than you lost. A refund that matches your real costs is fair and easy to explain. Keeping the whole price for an order you never started is not.
• Deciding case by case. If two customers get different answers, both will feel cheated. Use the same policy for everyone.
• Refunding without a record. Write down the date, the amount and how you paid it back. You may need it months later in a dispute.

How WISMO helps with cancellations

You can run all of this with a notebook and your chat app. WISMO is one way to keep the record on your phone.

Each order in WISMO has a price, a due date and its payment history. So you can see the deposit and every part-payment in one place. When a customer cancels, you mark the order as Cancelled. It leaves your active list but stays in your history, under the “Returned or cancelled” filter. Your customer sees the new status on their tracking link, with no app and no signup. If you track stock, the items go back into your stock count.

You can also keep private notes on the order, such as the refund amount and the date you sent it. Your customer does not see these. The order history, stages, payments, notes and tracking link are all free.

WISMO does not take payments or make refunds. You still collect the money and send refunds through your own payment app. Your first 30 orders are free. WISMO Pro is $9.99 a month or $99.99 a year, and you can try Pro free for 7 days.

For the full process around your orders, see the made-to-order business guide.