Shipping Goods and the 30-Day Rule
Since 2020, more small businesses have shifted their operations online. Online ordering and shipping have greatly boosted startups and small-business owners who otherwise couldn't compete in today's global marketplace.
If your business plans include shipping online or telephone orders, you must follow the Mail, Internet, or Telephone Order Merchandise Rule from the Federal Trade Commission (FTC). Also known as the "30-Day Rule," this regulation describes how businesses must fulfill orders. The rule ensures that customers receive orders in a reasonable time while giving businesses and shippers the flexibility they need.
This article discusses the 30-Day Rule, federal and state laws about shipping, and where you can look for additional information.
The 30-Day Rule Defined
The 30-Day Rule says that when a business advertises merchandise for shipment, it must have a "reasonable basis" for saying or believing it can ship within a certain time. For instance, if your ad says "10-day shipping guaranteed," you must reasonably believe you can ship the product within 10 days. If your advertisement does not have a shipping time, the product must ship within 30 days.
As with everything regulated by the federal government, there are exemptions to this rule:
- Magazine subscriptions and other serial deliveries
- Orders shipped COD (collect on delivery)
- Seeds and growing plants (the U.S. Department of Agriculture regulates these)
- Sales covered under the FTC's Negative Option Rule
The last rule needs some explanation. The Negative Option Rule refers to so-called prenotification plans. Customers of a certain age may recall belonging to clubs that would offer items for sale, such as books or records. If the customers did not want them, they had to proactively opt out of a purchase by returning a postcard.
Today, recurrent billing allows merchants to send items to customers, bill their credit cards, or debit their bank accounts. If you've tried to cancel a social media account or subscription service, you know that canceling recurrent billing often requires jumping through dozens of hoops. Some businesses have a "click to cancel" option, but the FTC is considering upgrading the Negative Option Rule so that all companies must have one.
Businesses that ship products regularly and use recurrent billing need to keep an eye on the FTC's deliberations, as this would affect shipping and billing practices.
Opening and Closing the 30-Day Window
The 30-day window opens when you receive a completed order and payment. This should be clear in your advertising. For example, "Ships immediately!" does not mean "ships immediately upon order" but "ships immediately upon payment."
Note that the 30-day period begins when you receive the payment. You don't have a 30-day grace period to locate the merchandise or start assembling the product. It must be in the box and on the delivery truck by the end of those 30 days. That seems like common sense, but depending on the type of business, you may need to push that deadline.
For instance, suppose you create stone etchings from customers' photographs. You know it takes you 20 days to produce the etchings. You're still bound by federal law to ship your product 30 days after receiving the photo and the payment, even if that gives you only 10 days' cushion. What can you do if your stonemason calls and tells you there are supply chain issues in the quarry?
Delay, Cancel, Refund
If a business cannot ship within the advertised time or 30 days, they have a few options.
- You must promptly tell the customer by phone, email, or regular mail. You must provide a new shipping estimate and offer a chance to accept the new estimate or cancel and receive a full refund.
- You can cancel the order yourself and give a full refund before the promised shipment date.
- All shipping delay cancellations must include full refunds, not credit toward future purchases.
If you discover you cannot ship on time, you must determine if you can ship at all. Some issues prevent businesses from completing orders, especially in the global economy. Your delay option notice must include general information about the reason for the backorder and why it won't be available until the new date (or why you must request an indefinite date).
For instance, you may say your stone quarry is no longer producing, and you need to find a new source. There is no reason to explain the natural disaster that flooded the district. The FTC government website lists the elements of a first delay option notice that you can use as a template for what to tell your customers.
Credit and COD
As noted above, collect-on-delivery (COD) sales are not bound by the 30-Day Rule. COD sales are most common with large companies and bulk shipping, since 90-day billing is the rule rather than the exception. Most small businesses cannot afford to ship mass quantities of merchandise and wait three months for payment.
However, if your business creates items to order from customer requests, such as the stone etchings in the above example, then a COD option might work for you. These types of sales, known as "sales on approval," are subject to different types of return policies and are not covered by the 30-Day Rule. However, if your delay in shipping is unreasonably long, you may still be subject to the FTC's enforcement actions.
If your business offers credit, you should first be sure you're compliant with state and federal agencies' rules on extending credit. The Small Business Administration (SBA) has assistance programs for businesses offering credit lines to customers. You should handle this first because the FTC rules give you 20 extra days to ship merchandise, on the theory that you must approve the customer's credit.
Once you offer credit, you are still bound by the 30-Day (now 50-Day) Rule. It is safer to follow all the rules first, knowing you can quickly approve credit and comply with federal laws, than to start everything from scratch the first time you receive an order. Whatever your advertising says is what you must deliver.
Advertising and the 30-Day Rule
The rule is only concerned with the order and shipment. Your advertising shouldn't affect the 30-Day Rule unless you make extravagant claims in your ads, or your salespeople make promises to customers.
If you ever claim, "We usually ship within 48 hours," then you must ship within 48 hours all the time. You cannot simply provide an "unless something happens" disclaimer. Once your ads state a time frame, you must ship or provide notice of a delay within that period.
Your order page should tell customers if you charge shipping and handling. However, be sure you differentiate between "flat rate" and "standard rate" in your shipping. Flat-rate boxes are shipped for one rate, no matter the weight. Standard-rate shipping means the cost varies by weight and size. And don't forget sales tax! Failing to include these minor details can violate FTC and other rules against deceptive advertising.
Drop Shipping and the 30-Day Rule
When a business uses Amazon or another distributor to handle and ship its products, it's called "drop shipping." Drop shippers are processors who keep the company's inventory in storage and ship to the customer. The shipper uses the company's business name and may even link to their official website in their own catalog.
Drop shipping is helpful for small businesses that lack the warehouse space and personnel to ship orders around the country. However, the drop shipper is just the middleman, and the retailer is still liable for any violations of the 30-Day Rule. Amazon became the shipper of choice for many small businesses because of its reliable delivery drivers and numerous warehouse hubs.
The FTC will enforce the 30-Day Rule against business owners whose drop shippers do not deliver within the 30 days required by law based on consideration of:
- Initial representations in contacts between the business and the fulfillment house. Did the business tell the shipper they had 30 days to complete and deliver an order? Did the shipper state that they understood this requirement?
- Did the seller transmit the order to the fulfillment center with enough time for the center to respond? Did the center have all the contact information necessary to report difficulties on their end in a timely manner?
- Did the seller make all other reasonable steps to avoid violation of the rule?
- Was the shipper's violation genuinely unforeseeable and beyond the seller's control?
- Did the seller genuinely not know and have no ability to know of the shipper's violation?
- Did the seller immediately correct the violation, notify the buyer, and refund or remedy the error?
In other words, it is not enough for you to shrug and say your shipper dropped the ball. You must engage in outreach to your customers, notify any government agencies that might need to be informed, and refund any payments.
If you need assistance with any of these issues, the FTC's business guide has fully detailed instructions on compliance with the 30-Day Rule.
Failure to Comply with the 30-Day Rule
Failing to ship within 30 days of an order can lead to injunctive relief (a court order preventing you from shipping products), civil fines of up to $50,120 per violation for up to five years before the complaint, and consumer lawsuits. State law enforcement may sue you for violation of state consumer protection laws.
In today's social media culture, getting a reputation for late deliveries and cancellations may be worse for your business than any government legal action. A glance at Amazon or Etsy reviews shows that the top sellers have good products and delivery times. It's in your best interest to ship promptly and notify your customers if any delay occurs. It's good business practice.
Get Help With Compliance: Call an Attorney Today
Entrepreneurs have a lot to do. You need good legal assistance to ensure you're current with all laws and regulations. Meeting with a business and commercial law attorney helps you meet the 30-Day Rule and all other relevant laws and regulations.
See FindLaw's Marketing and Advertising Laws section for more articles and resources.
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