What is the difference between a refund and a compensation?

A refund is tied to specific delivered items and reverses payment for them, so it requires a completed delivery and the quantities cannot exceed what was delivered minus what is already refunded. A compensation can be loosley tied to items. It creates a new payment to the customer for an amount you specify, per order line, on the shipping fee, or as a flat amount, without reversing the original transaction. Use a refund when goods come back and a compensation for goodwill or service recovery. If your returns platform sends everything as compensations, be aware that you lose the link to the returned items.