SaaS customer wants to cancel annual contract after 2 months - am I required to refund?

We run a B2B analytics platform. A customer signed up for our annual plan ($12K paid upfront) in November. Now in January they're saying they want to cancel because "it's not a good fit" and demanding a full refund.

Our Terms of Service clearly state "Annual subscriptions are non-refundable." They had a 14-day trial period before paying anything.

They're threatening to dispute the charge with their credit card company and leave negative reviews. Do I legally have to refund them?

Been there. I refunded a similar customer just to avoid the headache. The chargeback process is brutal and even if you win, you might lose your payment processor relationship if you get too many disputes.

Sometimes it's cheaper to eat the refund than fight it. Sucks but that's the reality.

Let's separate the legal question from the practical business question.

Legally: If your TOS clearly states annual subscriptions are non-refundable, they agreed to those terms, and they had a trial period, you're generally on solid ground to deny the refund. The contract is the contract.

Key factors that strengthen your position:

• Clear, conspicuous refund policy during checkout
• Customer had opportunity to evaluate (trial period)
• No material breach or misrepresentation on your part
• Services were provided as promised

However, there are some risks to consider before you dig in.

What risks? Our checkout flow definitely shows the refund policy. They had to check a box agreeing to the terms.

We've delivered everything we promised. They just decided they don't want to use it anymore.

The risks are mostly practical, not legal:

1. Chargebacks: If they dispute with their card company, you'll need to provide evidence. Even if you win, chargebacks hurt your processing metrics.
2. Review damage: Angry customers leave reviews. "Company won't refund" plays badly even if you're legally right.
3. Payment processor risk: Too many disputes can get your Stripe/payment account flagged or terminated.
4. Time and energy: Is fighting over $12K worth your time as a founder?

That said, if you refund every customer who changes their mind, you're setting a precedent. Other customers will expect the same treatment.

Former payment processor employee here. Lisa's right about the chargeback risk.

If the customer files a chargeback, you'll need to provide:

• Proof they agreed to your TOS (checkbox, timestamp, IP)
• Screenshots showing the refund policy during checkout
• Evidence you delivered the service (usage logs, login history)
• Any communication with the customer

Even with perfect documentation, you might still lose. Card networks tend to favor cardholders, especially for "services not as described" disputes.

Have you considered a partial refund or credit? We had this situation and offered to refund 50% as a "goodwill gesture" even though our terms didn't require it.

Customer accepted it, didn't leave a bad review, and we moved on. Sometimes compromise is the answer.

I like the partial refund idea. Maybe I offer to refund the remaining 10 months (prorated) minus a cancellation fee?

That way they're not paying for service they won't use, but there's still a cost to backing out of an annual commitment.

One thing to check: does your contract have an early termination clause? Some annual SaaS agreements allow cancellation with a penalty (like 50% of remaining balance).

If you don't have that in your terms, you might want to add it. Gives you flexibility to let people out without setting a "full refund" precedent.

Whatever you do, document everything. Save all emails, keep logs of their platform usage, screenshot your checkout flow and TOS.

If they do file a chargeback, having this ready makes the difference between winning and losing.

Also, respond to them in writing (email) with your decision. Don't just ignore them or handle it over the phone. You want a paper trail.

The prorated refund minus cancellation fee is a reasonable middle ground. Make sure you:

• Get their agreement to the settlement in writing
• Include a release stating they waive any future claims
• Process it as a refund, not a chargeback resolution

Example language: "In consideration of [Company] issuing a refund of $[amount], Customer agrees to release all claims related to the subscription and will not file any chargebacks or disputes."

This protects you if they accept the refund and then still try to dispute the original charge.

Update: I offered them a 70% refund ($8,400) with a signed release. They accepted immediately.

Honestly, it stings to refund that much, but the peace of mind is worth it. No chargeback, no bad review, no drama.

I'm updating our TOS to include a specific early termination clause with defined penalties. Lesson learned.

Thanks everyone for the advice!