The Sale Aftermath: Beware of PayPal Chargebacks

PayPal is a necessary evil. As a seller on eBay, it’s impossible to avoid using it. How they are able to do what they do (take money from sellers’ accounts whenever they want) is beyond me but it’s a brilliant business plan. Unlike credit cards where if you report a fraudulent charge or unsatisfactory transaction it’s the credit card company that pays for it, PayPal just moves money between accounts taking no responsibility for fraud charges. They’re just the judge in the de facto court of eBay justice.

There are a few things you can do to prevent losing money due to shady buyers or lost mail. While some of these things are inconvenient and the costs seem unnecessary, at least you know for certain these are the options available to you. Many times I don’t follow procedure for these reasons and should there be a loss, it would be acceptable to me. Other times I refuse payment if requirements are not met because it’s a valuable transaction and not worth the risk. At times like those, buyers may find the requirements inconvenient but that’s the least of my concerns for a big ticket item.

PayPal has many strict rules for you to follow in order to qualify for Seller Protection. I’m going to go over some of the basics. If you want to read the full policy guidelines, go to PayPal’s help pages.

1. Confirmed Address

A confirmed address means that PayPal has verified that the address on the account matches the billing address of the credit card on file. If you ship to an unconfirmed address, you are not protected from chargebacks. You can change your PayPal preferences to accept only payments with confirmed addresses (the buyer won’t be able to complete the transaction with an unconfirmed address), ask you each time (you have to choose to accept or deny any payment that comes through with an unconfirmed address), or accept all payments.

2. Delivery Confirmation

It’s the only way to prevent buyers from saying they never got the item when they did. You think people don’t do that? I’ve even heard of a buyer, after they got their money back through PayPal, tell the seller that they actually received it but since they’re in the UK and there’s no delivery tracking, they knew they would win. From my experience, USPS doesn’t scan at delivery about 20% of the time, but I still use them for most shipments.

PayPal has a very simple to use shipping process. A few clicks and you’ve created yourself a shipping label with free delivery confirmation for Priority Mail (it’s about $0.20 for First Class or Media Mail). If you go to the post office, it’s about $0.50. I believe tracking information for other shipping services like UPS, FedEx, and DHL is free. I like to stick with USPS for the most part because they have access to private mailboxes where the other shippers have been known to drop off packages anywhere (DHL once left a pair of U2 tickets on the porch of an apartment building because he couldn’t get inside the lobby. The buyer never got the tickets). But for very time sensitive or high value items, I go with UPS and require a signature. Unless it’s Express, USPS does not guarantee delivery date (a Priority envelope once took over 10 business days to reach a city in the same state!).

3. Signature Confirmation

If the payment is over $250, you have to get signature confirmation to be protected by PayPal. This option is available through PayPal’s shipping process as well.

4. Buy Insurance

This is the only way to protect against lost mail. It doesn’t matter if you show proof that you sent a package. You are responsible until the item is delivered. If the shipper loses your package, you need to refund the buyer and claim insurance to the shipper. Some items cannot be insured (intangibles like services, digital files, as well as concert tickets). Basically, the shipper can only refund you the cost of replacing the item. So if you can’t insure it, make sure to use other precautions like signature confirmation and going with more reliable shippers.

5. PayPal Pickup

Never allow a pickup if the buyer paid through PayPal. NEVER. That person can pick up your item and then go home and file a complaint. Good luck trying to convince PayPal you hand delivered it.

This also applies to items that are e-mailed to buyers, such as discount codes. Even if your listing says it will be digitally delivered, PayPal will still side with the buyer since you have no proof of delivery. And it’s not like you can cc PayPal on the e-mail or anything. One thing I do for the tickets that I have to e-mail is I will print out a copy and ship it as well.

If you ever do get a chargeback, follow PayPal’s instructions and provide as much information as you can about the transaction. If you know the transaction does not qualify for Seller Protection, just refund the buyer. If you let the complaint process complete, PayPal will not only let the chargeback go through, they will charge you $20.00 as payment for their investigation. I told you they were evil. Not only do you pay them to keep your money un-safe, but you pay them to take your hard earned money away too.

Lost mail happens and scammers are out there, but you can only do so much before you’re so paranoid you shouldn’t be selling on eBay. In the 4–5 years I’ve been doing this, I’ve had one big ticket item get lost in the mail (cost me $450) and maybe two or three chargebacks of smaller items that were shipped out of the country. As long as you are aware of what your choices mean (accepting unconfirmed addresses, not buying insurance, etc.) and don’t take unnecessary risks (accepting PayPal payment for a pickup), you’ll be okay. Once you’re past the 45 day mark, PayPal won’t allow chargebacks and the transaction is officially complete and closed.

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Will Chen's picture

"I like to stick with USPS for the most part because they have access to private mailboxes where the other shippers have been known to drop off packages anywhere"

I've never considered that before. That's a great tip!

Guest's picture

Thank you for the very informative article. Much appreciated!



Guest's picture

"Once you’re past the 45 day mark, PayPal won’t allow chargebacks and the transaction is officially complete and closed"

This unfortunately, is not true. I just received a chargeback in the amount of $1257 for an item sold 8 months ago. According to paypal, credit card issuers often allow users up to 3 years to do a chargeback.

Allthough I have signature confirmation that the item was received by buyer, I was informed it could still take more than 75 days before I can get my money back (if they are able to successfully fight the chargeback).

Guest's picture
Shiggity S

PayPal sucks, all right. I remember when they were an innovative company with quality ideas that benefitted the consumer. They crushed eBay's Billpoint service, which was crap. Then eBay bought them out, and they have sucked ever since.

Guest's picture

I realize this article was written some time ago, but I would like to add that Paypal is NOT a necessary evil to doing business on eBay. I flat out don't take Paypal- period. Iv'e been selling for a number of years and maintain a perfect 100% feedback. Paypal has had numerous security issues, including hacking and of course, the known random account freezings.

Don't let ebay trick you into thinking you can't do well on ebay without paypal. You can! :-)

Guest's picture

Thanks for the info but I sell software so anybody else selling software downloads make sure you ship a CD to the customer via USPS with delivery confirmation so your covered.