Dropshipping has become a very popular way of delivering goods directly to customers both online and offline. From its ease of setting up to reduced storage issues and cost-effectiveness, the many benefits of dropshipping are hard to overlook, which perhaps explains why many people consider it a lucrative industry!
However, individuals and companies looking to venture into this type of business need to observe certain “regulatory ultimatums”. But the legalities of operation can sometimes seem rather confusing, especially for a new dropshipping business that’s just taking off.
What Exactly Is Dropshipping?
Dropshipping simply means that as a business owner, you don’t stock or store the goods you sell. Instead, you bring in orders for goods only when a customer order comes in, and make sure the orders get to the specified destination.
It’s become quite common in recent years as more and more customers prefer shopping online for services and products they need.
Just like any other business model, running a dropshipping business requires you to observe and adhere to certain compliance rules. These regulations are usually in place to help protect the consumer as well as the business. Some of them include licensure, order fulfillment, taxation, sale contracts, and terms of sale.
Let’s take a closer look at them below:
Common Compliance Rules for Dropshipping Businesses
1. Proper Licensing
Like any other business, you need to apply for licenses to run your dropshipping business. Being properly licensed shows that your business is legitimate and operating legally.
Traders, Retailers, and Suppliers may need different types of licensing, so be sure to check with your state or country to find out the kind of licensure you need.
2. Order Fulfillment and Sales Contracts
To run a successful dropshipping business, you need to set up order fulfillment and sales contracts.
An order fulfillment contract specifies the goods and services that you’ll deliver. It also defines the delivery and shipping requirements as well as the time frame within which delivery should take place.
With a good dropshipping fulfillment process in place, it is easy to build a good reputation for your business while attracting customer loyalty. For retailers, the process usually involves being an effective communicator and acting as a bridge between your customers and suppliers!
A sales contract, on the other hand, states the details of the sale and includes the fees involved in such transactions. It also sets the price of each item you sell.
3. Dropshipping Agreement
As mentioned earlier, a true dropshipping business model must come with a formal sales agreement. Usually, between a seller and a manufacturer or supplier, the drop shipping agreement defines the responsibilities and rights of the seller as well as the manufacturer or supplier.
A key element of the agreement is the payment structure. The rules of pricing also play an important role in determining how much the vendor is expected to pay.
Don’t forget to pay sales taxes when you sell and deliver your goods. The goods must be taxable, and the seller’s share of the taxes should also be payable. Whether you’re a supplier, trader, or retailer, failing to pay taxes from your gains as a dropshipping business could easily get you into trouble with the law.
5. Refunds and Return Policy
Dropshipping can be a great opportunity for businesses to increase sales, and that’s undeniable. However, it is not unusual for customers to open their packages, only to find an item they didn’t order. Better yet, some products may come with certain defects or damages sustained during packaging or shipping.
In this case, the customer has the right to claim their money back or have the retailer exchange the “bad” item for what was ordered.
It is crucial to have a good refund policy in place because, for one, it can help the seller accept or deny refund requests from customers.
It also comes in handy in dealing with dissatisfied customers and keeping the company’s reputation intact. While it might not be a legal requirement by federal law, it is a crucial element for anyone running a dropshipping business, especially retailers.
6. Observing Copyright & Trademark Laws
The concept of copyright and trademark are highly regulated and are closely aligned to national and international laws. It is usually unlawful to reproduce another person’s work without permission.
It is therefore important that the seller or the supplier in dropshipping have the necessary license or sub-license to carry out such activities. Copyright infringement threats can be a huge blow to any dropshipping business, whether you’re a retailer, supplier, or solo online trader.
To sum it all up, drop shippers have several roles and responsibilities to observe despite the size or type of their business. Failing to comply with some of the regulations can get your business blocked by the e-commerce platform you’re using or even the federal government. But now that you know some of these rules, it is highly unlikely that you will get into compliance trouble.