Paul Horton: Shipping Goods and the 30-Day Rule

If your business plans to ship products to customers, you need to be aware of the Federal Trade Commission’s (FTC) Mail, Internet, or Telephone Order Merchandise Rule. Better known as the 30-Day Rule, it governs the manner in which businesses fulfill orders that are to be shipped. Basically, the rule is meant to ensure consumers that their goods will be shipped in a timely manner while also leaving a reasonable amount of flexibility for businesses.

The 30-Day Rule for Shipping Goods

The 30 Day Rule requires that when a business advertises shipping its goods within a certain time frame, the business must have a reasonable basis for stating so. If you don’t make a statement regarding shipping time, you must ship within 30 days–thus, the 30-Day Rule. The 30-day window begins when the business receives a completed order and payment.

If the business is unable to ship within the promised time or within 30 days, the merchant must promptly tell the customer by mail, telephone or email, and give a new shipping estimate and give the customer a chance to cancel their order and receive a full refund. This offer to cancel or accept the new shipping date must give the customer sufficient time to make a decision. In other words, you can’t call to inform a customer you can’t make a shipping time and then demand an immediate answer.

If you don’t wish to ask the customer whether you can delay the order, you can cancel the order yourself and give a full refund within the time period shipping was promised. All refunds that are forced by shipping delays must be full refunds, and not credit for future purchases.

Who Is Covered by the 30-Day Rule?

The 30-Day Rule applies to goods the customer orders by:

Mail
Telephone
Fax
Internet

Shipping Advertising and the 30-Day Rule

The 30-Day Rule focuses solely on the method of ordering. It doesn’t matter how the product is advertised or who initiates the sale. If a customer orders by any of the above methods, the shipment is covered by the Rule. The only exception would be a situation where a customer orders a product and the business sends the product along with an invoice that’s payable on receipt. In this situation, the 30-Day rule does not apply, however, if you’re still unreasonably slow in delivering such goods you may be in violation of FTC rules against deceptive advertising.

The Credit Exception

If you have customers who order merchandise through in-house credit (that is to say, your business is offering a line of credit), then you get an extra 20 days to send the merchandise. This means you have 50 days total to ship the goods (the extra 20 days is for approval of their credit).

However, if you’ve advertised a time frame within which customers will receive their merchandise, then you must ship within that stated time, even if you have to approve their credit. By stating a time frame, the business is assumed to have taken the credit approval process into account. So be careful of what you promise and make sure you can deliver.

Enforcement

The FTC has wide ranging powers to enforce the 30-Day Rule. Businesses can be sued by the FTC for injunctive relief, damages of up to $16,000 per violation, and redress for the consumer. Additionally, state and local agencies can sue you for violating consumer protection laws.

Using Drop Shipping Services

Drop shippers are distributors who hold a retail business’ inventory and ship goods to customers once the retailer has made a sale. Drop shippers can be the manufacturer or another business that provides storage and shipping services. Drop shippers receive a sales order from a business and then ship the product directly to the customer, often using the business’ address or packaging.

Many online stores that don’t have brick and mortar buildings (e.g., Amazon) utilize drop shippers, and more small businesses are utilizing drop shipping services.

The Retail Business is Still Liable for Violations

Although drop shipping is an extremely useful service (a business doesn’t have to keep an inventory on hand), the retail business is liable if there is a violation of the 30-Day Rule. According to the FTC, the person or business that solicits the order, and not the agent who does the shipping, is responsible for on time delivery.

The FTC will look at certain factors when deciding whether to take action against a seller that uses a drop shipper who has failed to deliver as promised or within 30 days. The FTC will investigate:

Whether the business made all reasonable efforts to prevent violations, including contracting with the drop shipping company to make sure it complies with the 30-Day Rule and monitoring customer complaints.
Whether the violations where unforeseeable and beyond the seller’s control.
Whether the seller took immediate action once a violation was discovered and moved to remedy harm to the customer.

The seller is the one who controls the sale and maintains control over the actions of the drop shipper, and therefore is ultimately liable for delivery. Therefore, businesses must take care in choosing their drop shipper as well as taking steps to minimize potential problems.