what do I do when my customer says he didn't receive an item I know I posted and he wants a refund

 
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In most cases it is better to refund and save any angst with defects, negs etc.

Especially if the cost of the item is far less than the sale value, only the cost + postage is lost.

 

But first check their feedback and see if they have claimed the same many times.

And perhaps ask the buyer if they have checked with their local PO, it may be waiting for collection.

 

It is the sellers responsibility to ensure an item arrives to their best ability, ie registered post or equivalent.

It is now up to you to chase the carrier for a lost article as you are the one with the postal information needed for a claim.

 

Keeping in mind delays happen and it could still turn up depending on how long ago it was.