As a business owner, cancellations can result in loss of income and time, particularly if they are made at the last minute.
Under Australian Consumer Law (ACL) your customers and clients have certain rights to cancel a service from you.
It’s a good idea to have a cancellation policy in place to manage these situations and limit your loss, while complying with the law. Written cancellation policies can help prevent ambiguity and serve as proof of what was agreed when your customer made a booking for your services.
Where should your cancellation policy be located?
Your cancellation policy can be included within your terms and conditions or exist separately.
Tip: standard (written) terms and conditions (T&Cs) are the legal basis on which you will be engaging with customers and should be tailored to your business. It is a good idea to use a commercial contracts lawyer with experience of your industry to prepare or check your T&Cs to ensure they meet federal and state laws and any industry regulations
Many small businesses outline their cancellation policies on their websites, have signage about their policy on display in their reception area and provide a link to the policy in any reminder emails texts sent to customers about their appointment.
Your cancellation policy, like all of your terms, must be fair. The Australian Consumer Law (ACL) prohibits unfair contract terms, which are void and unenforceable.
When to disclose your cancellation policy
If you have a cancellation policy in place, especially one involving cancellation fees, it is your responsibility to bring it to your customer’s attention before they book their service.
If clients book your service when they are aware of your policies, they have entered into a contract with you. Contracts can be entered into in a variety of ways, including:
- signing a document
- agreeing over the phone
- clicking an ‘I agree’ button on a web page
It is good practice to have customers sign acceptance of your T&Cs before you provide them with any goods and/or services. If they refuse, seek feedback about their concerns.
What to cover in your policy
In your cancellation policy, you should detail your cancellation process and timeframes and the fees you will charge for a cancellation, if relevant. This could be a fixed cost fee, or a percentage of the cost of the cancelled service.
If you are planning on charging a cancellation fee, this must be outlined in your terms and conditions and advertised to your customers before they make a booking. The fee also needs to be reasonable and reflect the actual costs you suffered due to the cancellation.
For example, if you operate an accommodation business and a client cancels their booking weeks in advance, you may not be able to charge a cancellation fee if you can reasonably sell the room to another customer. If however they cancel at the last minute you might reasonably charge a cancellation fee which takes into account the reasonable costs associated with booking and preparing for the customer’s arrival, as well as, the potential loss you have incurred.
You should keep in mind that it may not be reasonable to charge a cancellation fee if a client was unable to make their booking because of issues outside of their control, such as extreme weather.
Important things to note if you are charging a cancellation fee are:
- you cannot charge a client’s credit card without informing them or giving them the chance to dispute the charge
- you can’t recoup the full cost of the service they have cancelled.
When are cancellation fees appropriate?
Cancellation fees may be relevant in the following circumstances:
- You operate an appointment-based service, such as personal training or hairdressing, where clients book individual time slots, to protect you against late cancellations and no-shows.
- You offer a subscription-based service, such as a gym membership or software service, and your customer wants to finish their subscription before the minimum contract term has expired.
- You run an events-based business and have expended effort or costs in preparing for a unique event that is then cancelled.
When customers should be able to cancel and receive a refund
ACL stipulates that consumers are entitled to cancel and receive a refund for a service that:
- was provided with an unacceptable level of care and skill
- is unfit for the purpose it was requested for
- was not delivered within a reasonable time when there is no agreed end date.
However, they can’t request a refund for any services cancelled because they:
- changed their mind
- insisted on having it provided in a particular way, against the provider’s advice
- failed to clearly explain their needs to the provider
- a problem with the service was outside the control of the provider.
Often customers will cancel because of unavoidable situations such as illness or emergencies. Keep in mind that using your discretion to waive cancellation fees in certain situations may result in good will for your business that will outweigh the lost revenue you have suffered.