How do you handle customer complaints? 6 simple steps

Published Thursday 26 February 2026

Table of contents

• Why you should embrace complaints
• Create a customer complaints handling policy
• Step-by-step process to handle customer complaints
• Be prepared for anger and emotion
• Understand the customer's perspective
• Know your legal obligations
• Prevent future complaints by fixing underlying causes
• Make complaint handling easier with the right tools
• FAQs on handling customer complaints

Key takeaways

• Embrace customer complaints as valuable business feedback that reveals what needs improvement, since for every customer who complains, 26 others remain silent about the same issue.
• Respond to complaints within 24-48 hours with acknowledgment, listen without interrupting, and follow a consistent six-step process from recording details to following up for satisfaction.
• Stay calm and professional when handling emotional complaints by apologising sincerely, acknowledging the customer's perspective, and avoiding defensive responses that can escalate the situation.
• Analyse complaint patterns to identify and fix underlying systemic problems in your business, as preventing future complaints is more valuable than just resolving individual issues.

Why you should embrace complaints

Complaints might feel uncomfortable, but they offer real value. Customer complaints are valuable business feedback that reveal what needs to improve. While feeling defensive is natural, you'll be more successful if you treat complaints as opportunities rather than threats.

When customers complain, they're telling you something important about your business. If you can resolve their problem, you'll also fix the issue for other customers who experienced it but didn't speak up.

Customer complaints are unsolicited feedback that helps you improve without surveys or focus groups. Treating complaints as valuable information rather than personal attacks will help your business grow.

Here's why complaints matter:

• Direct insight: Complaints reveal real problems with how your business operates
• Silent majority: For every customer who complains, research suggests 26 others remain silent, meaning many more experienced the same issue but didn't speak up
• Free research: You get honest feedback without paying for surveys or consultants
• Retention opportunity: Resolving a complaint well can turn an unhappy customer into a loyal one, with retention rates reaching 95% if the customer feels the issue was resolved quickly

Create a customer complaints handling policy

Having a formal process helps you handle complaints consistently. A complaints handling policy is a written document that outlines how your business receives, records, and resolves customer complaints. Having a clear, simple policy ensures every complaint is handled consistently and professionally.

Your policy doesn't need to be complicated. It just needs to cover:

• how customers can make a complaint
• the timeframes for acknowledging and resolving the issue
• the steps you'll take to investigate
• how you'll keep records of the complaint

Sharing this process with your staff helps them feel confident and prepared. It also shows customers you take their feedback seriously.

Step-by-step process to handle customer complaints

Following a consistent process helps you resolve complaints effectively. When a complaint comes in, respond quickly. Customers who feel ignored are more likely to share negative experiences on social media. Acting fast protects your reputation and keeps your customer.

Follow this process to resolve complaints effectively and maintain customer trust.

Be prepared for anger and emotion

Not every complaint will be calm and rational. Emotional complaints happen because customers take poor service personally. They see your business as a single entity, almost like a person. When that 'person' ignores them or treats them unfairly, they feel insulted.

Most people try to avoid conflict. So when customers feel forced to complain, they're often already stressed and frustrated. Understanding this helps you respond with empathy rather than defensiveness.

Respond rationally, not emotionally

Your response sets the tone for the entire interaction. Stay calm and professional even when customers express frustration through letters, emails, or phone calls. These practical steps help reduce tension:

• Make complaining easy: Provide clear contact details on your website and stationery so customers can reach you before frustration builds
• Respond within 48 hours: Quick acknowledgment shows you take their concern seriously, even if resolution takes longer. As a best practice, some regulatory bodies like ASIC expect acknowledgment within 24 hours
• Apologise sincerely: When your business has let someone down, say sorry and mean it
• Acknowledge their perspective: Even if you disagree, validate that they feel wronged rather than dismissing their experience
• Avoid defensiveness: Disagreeing with a customer's view can feel like calling them a liar and will escalate the situation
• Set boundaries firmly: If a customer becomes abusive, say "I want to help you, but I'll need to end this conversation if the language continues."

Understand the customer's perspective

Seeing things from your customer's point of view helps you respond more effectively. Most complaints follow a pattern of escalating frustration. Customers rarely complain aggressively about minor issues. Problems start when initial concerns go unaddressed.

Here's the typical escalation path:

1. Customer raises a concern or makes a request
2. They see no action or acknowledgment
3. Frustration builds and they lodge a formal complaint

The majority of complaining customers are reasonable people who tried to resolve things quietly first. They complain because they feel ignored or treated unfairly. Nobody likes being dismissed, especially after paying for a product or service.

Know your legal obligations

Understanding your legal responsibilities helps you handle complaints correctly. Australian Consumer Law gives customers specific rights when products or services don't meet guarantees. Understanding these obligations protects your business and builds customer trust.

Under Australian Consumer Law, you must offer a remedy when:

• products are faulty: they don't work as expected or are unsafe
• services are substandard: they aren't carried out with reasonable care and skill
• goods don't match description: they differ from what was advertised

Depending on the problem, customers may be entitled to a repair, replacement, or refund. For major failures, the customer chooses the remedy. For minor failures, you can choose.

When to seek help

Some situations require outside assistance.

• Contact your state consumer protection agency if you're unsure about your obligations or a complaint escalates
• Seek legal advice for complex disputes or potential litigation
• Keep thorough records of all complaints and how you resolved them

Find your state or territory consumer protection agency at business.gov.au.

Xero does not provide legal advice. This guide is for information only. You should consult a professional for advice relating to your business.

Prevent future complaints by fixing underlying causes

Resolving individual complaints is important, but preventing them is even better. Repeat complaints signal systemic problems in your business that need fixing. For every customer who complains, many more experience the same issue silently and simply leave.

Here's how to identify and fix root causes:

• gather proactive feedback: ask customers specific questions about different areas of your business before problems escalate
• consult your staff: find out what issues they're seeing repeatedly and where processes break down
• audit your processes: review how you run your business, ideally with a business advisor, to spot inefficiencies
• implement changes quickly: fixing a broken process costs money upfront but saves more in the long run

Make complaint handling easier with the right tools

The right technology can streamline your complaint handling process. Good systems make complaint handling faster and more consistent. Cloud-based business software helps you track customer interactions, store important documents, and spot patterns in feedback before they become major problems.

When your financial records and customer information are organised and accessible, you can:

• respond faster: find relevant transaction history and communications quickly
• track patterns: identify which products, services, or processes generate the most complaints
• document properly: keep records that protect your business and demonstrate good faith
• follow up reliably: set reminders so no complaint falls through the cracks

Better systems mean you can focus on what matters: building customer relationships and growing your business.

View Xero pricing plans

FAQs on handling customer complaints

Here are answers to common questions small business owners have about managing customer complaints.

How quickly should I respond to a customer complaint?

Acknowledge complaints within 24–48 hours, even if you can't resolve them immediately. Quick acknowledgment shows customers you take their concerns seriously and prevents frustration from escalating.

What's the best way to handle a complaint on social media or in an online review?

Respond publicly with a brief, professional acknowledgment, then move the conversation to a private channel. Keep negative reviews visible, as deleting them can damage trust further.

Should I offer compensation for every complaint?

It depends on the situation. Match your response to the severity of the issue and what the customer actually wants. Sometimes a sincere apology and quick fix matters more than a refund or discount.

How can I train my staff to handle complaints effectively?

Use role-playing exercises based on real scenarios, give staff clear authority to resolve common issues, and review complaint outcomes regularly as a team learning opportunity.

What complaint management tools should I consider?

Start simple with a shared spreadsheet or notes in your accounting software. As you grow, consider CRM systems or helpdesk software that integrates with your existing business tools.