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Setting a Cancellation Policy for Your Rental Business

Imagine this:

You are loading up the truck to make a delivery for your rental business. Moments before you leave a call comes in from the very customer you are about to deliver to, and they want to cancel their order. Maybe you are delivering chairs for an outdoor wedding, and poor weather has forced them to a different venue. Or perhaps they ordered a tent to protect a party in case it rained, and it happens to be a beautiful sunny day.

What do you do?

Without a policy in place you can lose a lot of sales this way. It is essential to craft a deposit and cancellation policy for your rental business so that you have something to fall back on when these situations arise.

Deposits

First, it is wise to collect a deposit from the customer in order for them to secure their order with you. This gives some assurance that you won’t lose everything (namely, the ability to rent out your product to anybody on that day) if the customer pulls out at the last minute.

The balance can then be paid when the products are delivered.

The right deposit will differ from one industry to the next. You could ask for 25% of the total price up front, or even for 50%. You could also test different deposit percentages over time to see how customers react. 25-35% is a good, safe range that gets the customer to commit without scaring them off. They will see it as a risk to commit too much money before the product is delivered.

Set a Cancellation/Alteration Deadline

Changes or cancellations to a customer’s order in the days leading up to the actual rental period can hurt your business. You may not have time to get a cancelled item rented out with just a few days’ notice, so you lose the potential income from that product.

Set a deadline for order alterations and for outright cancellation. A week or two before the delivery date is a good range. It could even be a month, but this is getting to be pretty far out from delivery day. A couple of weeks should be sufficient notice if the customer needs to make a change to their order. Setting a deadline too far out from the delivery date transfers too much risk to the customer and may prevent them from doing business with you at all.

If the customer cancels before the deadline they should forfeit their deposit, but not be required to pay the difference.

If the customer cancels after the deadline they should be made to pay the full rental price because it is too close to the rental date to have get the product rented out again, so the customer is preventing you from making an income with that product on the day they had originally reserved it.

When the Weather Forces Cancellation

The weather can cause a tricky situation in some industries. A tent rental company should make a customer pay full price if they cancel at the last minute due to beautiful weather making the tent unnecessary.

If the weather prevents the setup of the tent by your company (due to lightning or very strong winds) you may choose not to charge the customer the full price. This is a difficult situation, since the customer is not causing the setup problem in any way.

This is the type of situation that is much smoother with a clear cancellation policy. You can decide ahead of time to charge full price, even for weather cancellations. You could also decide to only charge the deposit in this instance so that your company doesn’t lose out on all of the income from the transaction but the customer doesn’t have to pay full price for a tent that they cannot use due to factors outside of their control.

 

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