Refunds in WooCommerce are two separate things that look like one: recording the refund in your shop, and actually returning the money. Doing one without the other is the most common mistake here, and both directions cause problems.
Two kinds of refund
Automatic refund: WooCommerce tells the payment gateway to return the money, and records it. One action, both outcomes.
Manual refund, WooCommerce records that a refund happened. No money moves; you are expected to send it some other way.
The button available to you depends on the gateway and whether the original transaction is still refundable through it.
A manual refund clicked in the belief that it moved money is how a customer ends up chasing you. And a refund issued in the gateway's own dashboard without recording it in WooCommerce leaves your shop showing revenue you no longer have.
Where to find it
Open the order and press Refund. You get a line for each item, plus shipping and tax.
Enter quantities rather than totals where you can. WooCommerce calculates the amount including the tax that applied, and doing that by hand is where reconciliation errors come from.
Then choose either the gateway button or the manual one. The gateway button says which gateway it will use, and its absence means an automatic refund is not available for that order.
Restocking is a separate tick
The quiet source of inventory drift.
Refunding an order does not return the item to stock unless you ask it to. So a shop processing refunds without ticking that box slowly reports less stock than it has, and the correction only happens when someone counts.
For a returned physical item, restock, once it is back and saleable, not when the refund is issued. For a damaged return or a digital product, do not. Inventory and stock management goes into the drift this produces.
Partial refunds
Refund one item from a multi-item order, or an amount without any items. A goodwill gesture, a shipping refund, a price adjustment.
Partial refunds accumulate: several on one order are recorded separately and the order shows the total refunded. That is useful and it means the reporting figure is net of every one of them.
A shop quoting gross revenue while issuing frequent partial refunds is overstating what it made, sometimes considerably. Reading WooCommerce analytics walks through net versus gross.
Refunded is not cancelled
Two different statuses for two different situations.
Cancelled means the order ended before fulfilment. Stock is restored automatically.
Refunded means money was returned. Stock is not restored automatically.
Use cancelled for an order that never happened, and refunded for one that did and was reversed. Mixing them makes your order history unreadable a year later, when you are trying to work out what actually shipped.
The gateway has its own rules
Most gateways allow a full refund for a limited period, commonly 60 to 180 days, after which the transaction can no longer be reversed and you must pay the customer another way.
Some refund the transaction fee, some keep it. On a shop with frequent refunds that is a real cost worth knowing about rather than discovering in a statement.
And a refund is not instant for the customer. It typically takes several days to appear on a card statement, which is worth saying in the email: otherwise the customer contacts you on day two believing nothing happened. Configuring payment gateways goes over where these settings live.
Refunds and chargebacks are not the same
A chargeback is the customer going to their bank instead of to you. It costs a fee whether or not you win, and too many affect your standing with the gateway.
The practical implication: a customer who cannot easily reach you files a chargeback instead of asking for a refund. Visible contact details and a clear returns policy are cheaper than the fees.
If a chargeback arrives for an order you already refunded, respond with the evidence rather than ignoring it. Unanswered cases are decided against you by default.
Write the policy down
Not because it is required, but because everything above is easier when both sides know the answer in advance.
Say how long a customer has, who pays return shipping, what condition you accept, and whether digital products are refundable at all. Put it where a customer sees it before buying, and link it from the checkout.
Consumer law in your jurisdiction may set a minimum you cannot contract out of, and a policy claiming otherwise is unenforceable and looks worse than having none.
Keep the two systems agreeing
Once a month, compare refunds recorded in WooCommerce against refunds in the gateway's dashboard.
Differences mean one of the two failure modes at the top: a manual refund nobody actually paid, or a gateway refund nobody recorded. Both are small problems found monthly and awkward ones found at year end.
Record the reason alongside every refund
A refund is a financial record and a customer relationship at the same time, and the note attached to it is the only place the reason exists. Write what was returned, why, and whether anything was withheld. Six months later a dispute over that order is answered from the note or not at all. The aggregate matters too: refunds grouped by reason show whether the problem is one product, one delivery route or one description that promises more than the item delivers, and that pattern is invisible when each is handled individually.