How to design your business refunds

Since the pandemic, many businesses have been hit by the sting of event cancellations, refunds and cash flow issues.

Despite being two years into it, the payback wave shows no signs of stopping. In fact, many Australians are still chasing tens of thousands of refunds from canceled trips in the midst of the pandemic.

Recent global staff shortages, fuel price hikes and the war in Ukraine have put new pressure on the travel and events industry. However, consumer patience is running out due to poor processes, delayed payment terms and last-minute cancellations. Customers now expect their money to be refunded quickly and easily, but not all companies have the infrastructure to do this.

For example, Australian online sports management platform revolutionseSPORT was forced to reinvent its refund payment system due to demand, causing the organization to process $4 million dollars in refunds in the past 12 months.

Managing Director Alex Mednis of Australian online sports management platform revolutionseSPORT said that while he thought things would return to normal, the numbers indicated otherwise.

“The whole repayment space has been shaken up in the last six months because every time you think you’ve solved the problem, a new problem comes up. We started thinking, will things ever go back to normal? But the wave has only gotten bigger and a year later, this new world of repayments seems to be here to stay,” said Alex.

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“Despite rising consumer confidence, in terms of spending, companies and organizations in the events, services, sports and travel industries have experienced a bit of trauma after being hit so many times,” said Alex.

Co-CEO of Australian online payment platform Chris Dahl said most people don’t realize that processing massive refunds is a complex financial process for businesses, often involving other parties or multiple payment systems.

“There is a lot of complexity in planning refunds in a clean, efficient and fast way. We have helped some of our customers with this during the pandemic and have seen first hand that processing regular refunds is a new normal business practice,” said Chris.

“Companies must now design their financial processes and technology in anticipation of repayments. Ensuring refund policies are in place and transparent to their customers, and having a single source of truth for refund management are good starting points for companies to review their operations,” said Chris.

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Full Fund Deposits vs. Cash Flow Problems

Alex Mednis explained that many of their sports clubs and organizations suffered the damage after receiving total funds from members, which they had to repay in full.

“Once this happened, we realized we had to change our process for our clubs, organizations and businesses. We redesigned our technology to schedule refunds more efficiently and advised sports clubs on how to manage refunds,” said Alex.

“The biggest change is that organizations and businesses are now less likely to take full-money and opt for deposits instead. Businesses need to think ahead and stop using the money the way they get it, instead using past refunds, cancellations, and non-attendance numbers to figure out how much money you need.

“It’s a complex issue that organizations can’t always accept overnight, especially if their business is focused on demanding full payment upfront,” explains Alex.

Chris Dahl said many industries across the board have been affected by changes to their online payments and processes, but companies that have adapted have done the best.

“We have a lot of travel and event customers who rely on prepaid bookings, and they’ve suffered quite a bit from the refund bills. Interestingly, however, now that Europe is open for the summer, we are seeing many of the same cancellation issues that occurred during the pandemic due to staff shortages, COVID-19 and the war in Ukraine,” said Chris.

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“That shows us that companies need to think about how payments are made in relation to travel and events that can be affected by unforeseen circumstances. Customers are legally entitled to a refund if something is cancelled, but at the same time this puts a lot of pressure on small to medium-sized businesses that have been hit hard by the pandemic. Accepting partial payments in the form of full amount deposits and access to an efficient payment platform will definitely help the process,” Chris said.

With hundreds of flights recently canceled in Australia and Europe and thousands stranded, it’s clear that bulk refunds are here to stay. With that in mind, companies need to rethink their processes and technology to avoid potential financial and operational risks.

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