Dealing With Customers

It makes good business sense to deal fairly with your customers – and it’s also a legal requirement. Find out about fair business contracts, how to deal with complaints and refunds and what rights your customers have.

If you sell a customer a product or a service, you need to give them an invoice (bill) by law if both you and the customer are registered for VAT (a business to business transaction). An invoice is not the same as a receipt, which is an acknowledgement of payment.

The invoice must include certain information such as:

  • how much the customer needs to pay you
  • when the customer must pay you

You and the customer also have certain obligations on payment.

Invoices - what they must include

You must clearly display the word ‘invoice’ on the document. You must include:

  • a unique identification number
  • your company name, address and contact information
  • the company name and address of the customer you’re invoicing
  • a clear description of what you’re charging for
  • the date the goods or service were provided (supply date)
  • the date of the invoice
  • the amount(s) being charged
  • VAT amount if applicable
  • the total amount owed

Sole trader invoices

If you’re a sole trader, the invoice must also include:

  • your name and any business name being used
  • an address where any legal documents can be delivered to you if you are using a business name

Limited company invoices

If your company is a limited company, you must include the full company name as it appears on the certificate of incorporation.

If you decide to put names of your directors on your invoices, you must include the names of all directors.

VAT invoices

You must use VAT invoices if you and your customer are VAT registered.

These include more information than non-VAT invoices.

Your right to be paid

You can set your own payment terms, such as discounts for early payment and payment upfront.

Unless you agree a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service.

You can use a statutory demand to formally request payment of what you’re owed.

Charging interest for late payment

You have the right to charge interest for late payment, but you can choose not to.

Liability for disputed card payments

If a customer asks their credit or debit card issuer to reverse a transaction, they can reclaim the value of the transaction from you. This is known as a ‘chargeback’.

Chargebacks can be made when:

  • the purchased item never arrived
  • the item wasn’t as described
  • a customer’s card was used without their permission to purchase the item fraudulently.

You can be charged up to 120 days after the transaction has been debited or from when the goods or services were due to be received.

Minimising chargebacks

If a customer uses their PIN, you won’t be liable for a chargeback unless the goods aren’t as described or faulty.

Where you cannot accept a PIN, a clear signature will help but there is no guarantee against a chargeback.

For card-not-present transactions, such as online sales, the risks of chargeback will be higher.


If you want to set up a business that takes a sum of money from a customer every time they use a service, for example, online trading, you may need to be authorised by the Financial Conduct Authority.

If customers pay you in large amounts of cash, your business may need to be registered for an anti-money laundering scheme.

Protecting customer data

You must follow the rules on storing customer data to protect their financial information.

Your standard sales contracts must be ‘fair’ or you won’t be able to enforce them.

There are different rules on what’s fair for:

  • consumer contracts
  • business contracts

You’re legally responsible for certain situations (eg when goods you sell are faulty). You must not try to claim you’re not responsible.

You have more responsibilities towards consumers than to other businesses.
Your customers also have implied rights when buying your 
goods or services, unless the contract legally states otherwise.

Unfair consumer contracts

You can’t enforce unfair terms in a consumer contract, or unfair consumer notices (eg signs on a shop wall or in a car park).
You can never enforce terms that try to avoid your responsibility for:

  • death
  • injury
  • faulty goods
  • goods that aren’t as described
  • selling goods that aren’t yours to sell

You might not be able to enforce terms if they try to avoid your responsibility in other ways, eg:

  • delays
  • unsatisfactory services
  • not doing what was agreed

Your contract terms might also be unfair if they weigh the contract significantly in your favour, eg:

  • by providing for excessive cancellation charges and automatic loss of all upfront payments
  • by creating unbalanced rights, eg being able to cancel a contract at any time, but requiring the customer to give 3 months’ notice
  • by allowing you to increase the agreed price at a later date

Your contract won’t be unfair just because it sets a price that’s higher than another business charges.

Contracts must be written in plain language to avoid being misleading and unfair.

Your customers have implied rights when buying your goods or services.

Some implied rights are also known as ‘statutory rights’.


Implied rights mean a product must be:

  • as described
  • of satisfactory quality, eg safe, in working order, free of defects
  • fit for purpose - capable of doing what the customer has asked for

Contracts for hiring, hire purchase and part exchange also have these implied rights.

Consumers always have these implied rights when buying goods - the contract can’t legally state otherwise.


Implied rights mean services must be carried out:

  • with reasonable care and skill
  • within a reasonable time (if no specific time has been agreed)
  • for a reasonable charge (if no exact price has been agreed)

You’re unlikely to be able to enforce terms in a consumer contract for services if they try to deny a customer’s implied rights.

Business contracts

Your business customers have implied rights unless the contract legally states otherwise in a way a court would decide is reasonable.

If a customer complains

It’s up to the courts to decide if terms in your contract are unfair.

You can be taken to court by the Competition and Markets Authority or a local trading standards office to stop you using unfair terms.

You must offer a full refund if an item is faulty, not as described or doesn’t do what it’s supposed to.

Customers have exactly the same rights to refunds when they buy items in a sale as when they buy them at full price.

When you don’t have to offer a refund

You don’t have to refund a customer if they:

  • knew an item was faulty when they bought it
  • damaged an item by trying to repair it themselves or getting someone else to do it (though they may still have the right to a repair, replacement or partial refund)
  • no longer want an item (eg because it’s the wrong size or colour) unless they bought it without seeing it

You have to offer a refund for certain items only if they’re faulty, eg:

  • personalised items and custom-made items, eg curtains
  • perishable items, eg frozen food or flowers
  • newspapers and magazines
  • unwrapped CDs, DVDs and computer software

Customers have exactly the same rights to refunds when they buy items in a sale as when they buy them at full price.

Online, mail and phone order sales

Online, mail and telephone order customers have the right to cancel for a limited time even if the goods aren’t faulty. Sales of this kind are known as ‘distance selling’.

You must offer a refund to customers if they’ve told you within 14 days of receiving their goods that they want to cancel. They have another 14 days to return the goods once they’ve told you.

You must then refund the customer within 14 days of receiving the goods back. They don’t have to provide a reason.

Repairs and replacements

If a customer has ‘accepted’ an item, but later discovers a fault, you may have to repair or replace it. The customer can still reject the item after it’s been repaired or replaced.

A customer has accepted an item if they’ve:

  • told you they’ve accepted it (having had enough opportunity to inspect the item before confirming they’ve received it)
  • altered the item

You must repair or replace an item if a customer returns it within 6 months - unless you can prove it wasn’t faulty when they bought it.

You can ask a customer to prove an item was faulty when they bought it if they ask for a repair or replacement after 6 months.

Customers have up to 6 years to make a claim for an item they’ve bought from you (5 years in Scotland).

Warranties and guarantees

A customer has the same right to free repairs or a replacement regardless of whether they have a warranty or guarantee or not. So you may still have to repair or replace goods if a customer’s warranty or guarantee has run out.

Proof of purchase

You can ask the customer for proof that they bought an item from you. This could be a sales receipt or other evidence such as a bank statement or packaging.

Items returned by someone other than the buyer

You only have to accept returns from the person who bought the item.

Penalties for displaying notices

It’s illegal to display any notice that deliberately misleads consumers or deceives them about their rights, eg a sign that says you don’t accept returns or offer refunds.

You must be authorised by the Financial Conduct Authority (FCA) to offer credit to consumers.

Authorisation and rules you must follow

You must show you meet FCA’s minimum standards to be authorised. This includes ensuring your firm has a suitable business model and is well run by ‘fit and proper’ people. You must follow rules for running your business and treating customers, including:

  • rules in the FCA Handbook, including the ‘Perimeter guidance’
  • rules about terms in sales contracts
  • Consumer Credit Act (CCA)
  • Consumer Protection from Unfair Trading Regulations

What you need consumer credit authorisation for

You must check if your firm’s proposed business means you need FCA authorisation to carry out regulated consumer credit activities such as:

  • selling goods or services on credit (including hire purchase)
  • hiring or leasing out goods for more than 3 months
  • lending money
  • issuing credit cards
  • arranging credit for other people
  • collecting or purchasing consumer credit debts
  • helping people with debt problems or advising on people’s credit standing

Any business offering credit or financing to customer must be authorised by FCA, not just credit specialist companies. This includes non-profit organisations.

Business to business lending

You don’t need to be authorised if you only offer credit to another business, unless your customer is:

  • a sole trader
  • a partnership with fewer than 4 partners
  • an unincorporated association

If you offer credit to these customers, you probably need to be authorised.

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