Ultimate PayPal Guide for Dropshippers

Are you Dropshipping? Learn the tips and tricks to keep your PayPal account healthy, limit disputes, and avoid reserves and account bans.

PayPal and Shopify are a match made in heaven. Follow this guide to keep your PayPal account healthy.

Full disclosure: I am the founder of Simple Seller Protection, a Shopify App that automatically syncs tracking numbers and responds to PayPal disputes. The app can even automatically appeal after losing a dispute. My team built this app after working with thousands of Shopify merchants and winning 95% of disputes for them.

PayPal STILL works with dropshipping, but you have to follow this guide

PayPal was built to support seamless commerce on the Internet. To be clear, we are all in the e-commerce business, not the dropshipping business. Dropshipping just refers to the way a merchant may fulfill orders. Fortunately, PayPal supports ecommerce stores that use this method. If you’re a dropshipper, you can still use PayPal, you just need to do it properly. This guide will show you how.

In this guide, you will learn:

• Why PayPal is crucial for your dropship store
• Step by step instructions for setting up your business account
• How to Scale your business while using PayPal
• How to enable Seller Protection so you can keep your profits
• The word-for-word templates used to win 95% of your disputes
• What to do if your account goes under a review

Why you should use PayPal on your ecommerce store

Using PayPal is a no brainer for ecommerce, here’s why:

• High conversion rates. PayPal’s primary goal is to build a great buyer experience, so they have made it convenient for buyers to pay for products and fly through a checkout experience without giving up sensitive credit card information. You’ve already done the hard work of finding products your customers want. Now, it’s your job to offer them the most convenient way to pay for their orders.
  One large dropshipper sold over $100M worth of merchandise and 43% of orders were paid through PayPal. Adding PayPal has shown to lift conversion rates from 7–18%.
• International coverage. E-commerce is a global phenomenon and the entire world is embracing online payments. Credit cards are not widespread in many countries, PayPal allows you to expand your user base to those countries
• Dropshipping is not explicitly prohibited. Some payment gateways, like Stripe, explicitly prohibit dropshipping in their Terms of Service, but PayPal has no such restrictions.
• PayPal is merchant friendly. PayPal handles the hard stuff like currency conversion, security and they offer some really great features like Seller Protection which we’ll get to later on.

PayPal is one of the only payment providers that support dropshipping. You’ll see many dropshippers reporting issues with PayPal, funds being held in reserves, losing money, the list goes on. The bottom line is if you do things correctly, you will not face these issues.

Setting up a PayPal Business Account

Your PayPal account setup directly affects your ability to scale and keep your account healthy. Your PayPal account MUST be a business account, not a personal account, Click here to sign up for a business account today. This allows you to access more features to help you grow and scale.

Optimizing Your Business Account

Now that you have a Business account, make sure you are set up for success. Follow the steps below:

• Provide documentation on yourself, the owner, and the business. Upload photo verification, business FEIN or other identifying attributes. PayPal wants to ensure you’re a real, trustworthy person to mitigate their risk.
• THIS IS HUGE! Enable Auto Sweep to automatically transfer your PayPal balance into your bank account every business day. This way, even if PayPal decides to hold a reserve, you have minimized your exposure.
• Here’s how:
  In your PayPal dashboard, roll over your username on the top left of your PayPal dashboard and click Account Settings. Then, select Money, banks and cards tab from the menu on the left.

• Scroll down until you see Automatic Transfers. If the option is there, click on Manage to add your banking information.

• If you do not see this option you will need to contact a support agent via live chat. To quickly access, visit this link and click “Message Us”. Of, click on the Chat icon on the top of your screen to initiate a new support message. Once you have a live agent, you need to request to have Auto-Sweep enabled on your account.
• Make sure your company name and logo are consistent with your e-commerce store. It can be a jarring experience if a customer makes a purchase on a Shopify store and sees a different company name on the PayPal charge.
• Get familiar with the Resolution Center and respond to disputes as quickly as possible.
• Here’s how: Log into your PayPal account and roll over the Activity tab to expand more options. From there, click Open Cases to see disputes, messages from customers, and chargebacks. Click Closed Cases to see cases you are no longer able to respond to.

PRO-TIP:

• You can connect multiple stores to a single PayPal account to make it easier for you to manage your funds. If you do this, make sure the business name on your PayPal account is something the customer recognizes regardless of which store they are on.

Scaling Your Business with PayPal

You know the feeling, you have a winning product, you’re scaling steadily and you’re ready to increase budgets and take it to the next level. This is a crucial moment, you want to grow while maintaining your PayPal reputation. It’s important to be careful so that growth doesn’t result in an account ban, which means PayPal permanently disables your reputable account! Here’s how to take precautions to prevent bans, limitations, and more:

• First things first, before or during sudden growth let PayPal know what you’re planning to do and give details about the growth you’re expecting. This helps you avoid holds, reserves, etc. Call directly with this number: (877) 896–6424.
• Add tracking information to your PayPal transactions ASAP. You’ll see this as a recurring theme. PayPal trusts you more when you deliver things as promised to customers. Use Simple Seller Protection to automatically add tracking numbers to your PayPal transactions and remove one thing from your to-do list.
• Make sure your supplier can keep up. Contact your supplier and let them know you’ll have increasing fulfillment needs and make sure it’s possible for them to deliver.
• Make shipping timelines clear pre-purchase and post-purchase. Clearly state the shipping time on product pages, checkout pages, and order confirmations. Reiterate the timeline in emails and other customer communication and be proactive if there are additional delays.

Considering the Customer Journey

Set Expectations

While dropshipping has the advantage of carrying little to no inventory, it often means your customers are waiting days or weeks before their order ships. You’ll need to explicitly state your shipping times. Customers should not expect 2-day shipping if that’s not going to be their experience.

It’s also important to keep your customer updated with their order progress if it takes longer than a few days. If you know your product will take more than 5 days to ship, you should put customers into a Purchase sequence. Here’s a great outline for keeping in touch during a longer shipping process and some ideas for content:

• Day 0: Send an order confirmation email. Thank the customer for their purchase, include their receipt and include a timeline of shipping events that they can reference later.
• Day 1: Send a brief welcome with a milestone about the progress of the order. “Welcome to the club! Your order is officially in progress today! We’re printing/building/assembling this piece just for you!”
• Day 4: Send confirmation the order is produced. “YES! Your order has been produced, stay tuned for our next update.”
• Day 6: Send a confirmation of packaging. “Your item is packed and ready to leave our production warehouse!”
• Day 8 (or whenever shipping begins): Send a shipping confirmation. Celebrate the shipping event, include the order tracking number and include any other relevant information about shipping. If may take 2–3 weeks for the order to be delivered you should explicitly note that in your email “Your order has been shipped. Click the tracking link to follow your package’s journey!”
• Day 11 (or whenever delivered): Send confirmation of the package delivery. “Your order has been delivered!”
• Day 13: Ask for a review. You must ensure that the review request email is triggered only AFTER your customer receives the product. You wouldn’t want to remind the customer of how long they have been waiting.

Pro-tip

Optimize shipping times. If you are selling more than 20 of an item per day, you should ask your supplier to ship via Special Line Shipping. Typically, dropshippers use ePacket, which can take 14–28 days to deliver to the US. However, services like special line shipping or Yunexpress shipping can deliver in 5–9 days to many countries around the world. Special Line is slightly more expensive, but the expense is well worth it. Customers are happier with faster shipping and your bottom line is protected!

Build Rapport with PayPal by Adding Tracking Numbers

This is one of THE MOST IMPORTANT ways to protect your money. Adding order tracking numbers to your PayPal transactions is the easiest way to build rapport with PayPal. PayPal takes note of your consistency and customer feedback to classify your account.

Here’s how adding order tracking numbers to PayPal can benefit you:

• Get $$ Faster. PayPal can hold funds for up to 21 days, but will reduce the hold time period if you’re consistently proving you deliver products.
• Avoid/Minimize Rolling serves. PayPal may apply a rolling reserve to your account in order to protect themselves. Being in good standing with PayPal and having positive customer feedback can help reduce or even remove reserves from your account.
• Happy Customers. Adding order tracking information to PayPal keeps your customers informed and helps them set expectations for delivery.
• Qualify for Seller Protection. Automatically meet 1 out of 3 requirements for PayPal Seller protection, which protects you from buyer complaints.

Typically, adding tracking information is a tedious, manual task, but Simple Seller Protection automatically adds tracking information from Shopify to PayPal. It takes about 2 minutes to install and connect your PayPal and you’re all set. Once setup is complete the automation takes over, saving you time and energy. Plus, they protect 500 orders totally FREE each month!

What’s PayPal Seller Protection

Paypal Seller Protection is an official Paypal feature that saves you from losing money to Paypal chargebacks. If your order meets certain requirements and you communicate properly with PayPal, your funds will be protected from two of the most common buyer complaints: “Unauthorized Transaction” and “Item Not Received”.

Requirements for Seller Protection

1. The order must ship to the address on the Transaction Details page
2. You must provide online order tracking to be eligible for protection
3. In the event of a “Merchandise Not Received” dispute, you must provide Proof of Delivery or Proof of Shipment.

Paypal Seller Protection is only enabled if you provide order tracking numbers as soon as an order is fulfilled.

Templates to Help You Win 95% of Disputes and Chargebacks

What is a Dispute?

A dispute is a process, facilitated by PayPal, that allows a customer to file a complaint about a purchase and open a dialogue with you, the merchant. This is a way for you to work with your customers to resolve an issue before it becomes a claim.

One reason consumers trust and use PayPal is that it’s easy to dispute a charge. A consumer can open a dispute within 180 days of a transaction. Disputes can be opened for two reasons:

1. Item Not Received (INR): This means a buyer is claiming they did not receive their order.
2. Significantly Not As Described (SNAD): meaning the item that a buyer received is significantly different than they expected, based on the seller description and/or photos.

The best way to resolve a dispute is to communicate with the customer.

How to Win PayPal Disputes

Winning disputes is crucial, both for your PayPal reputation and for scaling your business. Losing disputes can kill your profit margins, lead to account reviews or even lead to PayPal withholding funds.

Check out these templates to help you win in any scenario. Just switch any variable in the [] or {{}} fields to the information from your shop or customer.

If a customer claims that a dispute due to “Item Not Received” and you’ve delivered the product use this simple template:

Dear Sir or Madam,

The customer, [CUSTOMER NAME], placed order #[ORDER NUMBERS] on [STORE NAME] on [ORDER DATE].

The order was shipped to the provided address: [ADDRESS]

The order was shipped using [CARRIER] with the tracking #[TRACKING NUMBER]. The customer received a shipping notification including the following URL to track the shipment status:[TRACKING URL].

The order was shipped on [SHIPPING DATE]

The order was delivered on [DELIVERY DATE].

These dates fall within our Shipping and Delivery policies detailed here: {{Terms of Service URL}}.

Please contact us at [YOUR PHONE NUMBER] or {{Support Email}} for more questions.

Include the following attachments:

1. Screenshot of tracking URL

2. Screenshot of customer’s order confirmation page

3. Screenshot of Shipping and Delivery policies page

PRO-TIP: Download Simple Seller Protection for Automatic Dispute Resolution. The app automatically screenshots proof of shipping, fills out this template and responds to PayPal for you!

If a customer makes an “Item is Not as Described” claim, follow these steps:

Unfortunately, there’s no simple template for this scenario. If a user issues a complaint about the product they received you should respond to their inquiry. Listen to what the customer is saying do one of two things:

1. If you’re NOT at fault and the product is as described and in good condition, present your case. This is where it important that you:
2. Request a photo of the product the customer received.
3. Take a comparison of the product photos on your site
4. Respond to the dispute with all of the evidence you have compiled and state your case
5. If you are at fault and the product is damaged, incorrect or otherwise not as described you should immediately contact the user and offer an exchange or refund to resolve the issue.

What is a Chargeback?

A chargeback is a consumer’s request to their card issue to reverse their payment on a product, good or service. According to PayPal some common reasons for chargebacks are that the customer didn’t receive an item, received a damaged item, didn’t recognize the credit card charge, believe the charge is fraudulent, were charged more than once or are generally unhappy with the purchase.

Once a chargeback is initiated by the customer’s credit card issuer the transaction amount will be immediately removed from your PayPal account. This happens so they can cover the refund in the event the customer is found to be the winner of the chargeback.

This is the reason that PayPal commonly keeps a Reserve amount of money. These reserves increase as you receive more chargebacks.

How to Win PayPal Chargebacks

According to PayPal some common reasons for chargebacks are that the customer didn’t receive an item, received a damaged item, didn’t recognize the credit card charge, believe the charge is fraudulent, were charged more than once or are generally unhappy with the purchase. These templates will guide you through winning in each of theses scenarios:

If a customer issues a chargeback on the basis of Fraudulent Charge

If a chargeback is initiated on the basis that it is fraudulent, you’ll need to investigate. To win a chargeback that is claimed to be fraudulent, prove that

1. Check that the billing address and the shipping address match. It is extremely unlikely that someone would use the customer’s card to place an order then ship that order to the cardholder’s address.
2. Check that the billing address on the card and the order also match.
3. Verify that the IP address that was used to place the order is in the same area as the shipping and billing address. You can check the IP address location with this free tool. You can find the customer IP address within Shopify by following these instructions.

If you can verify that the charge is NOT fraudulent, use this template to respond

[SHOP NAME] can confidently conclude that this order is NOT fraudulent. [CUSTOMER NAME] placed order #[ORDER NUMBERS] on [STORE NAME] on [ORDER DATE].

The order was shipped to the provided address: [ADDRESS]

The order details include a matching billing and shipping address, indicating that the customer placed the order and had it shipped to themselves.

The IP address that was used to place this order is within [# of miles] of the shipping address.

Order #[ORDER NUMBER] was delivered to the customer’s address.

Include the following attachments:

1. Screenshot of tracking URL and or delivery confirmation
2. Screenshot of the order details including the name and address
3. Screenshot of relevant IP investigation detail

If a customer issues a chargeback on the basis that they did not receive a refund, but have not returned the product

After a [CHANNEL FOR CONVERSATION] with [CUSTOMER NAME], our team at [BRAND/STORE NAME] has determined that the customer was not satisfied with the product and we would issue a full refund. As stated in our Terms of Service, a refund will be initiated only after the customer provides proof of the return. It is required that the customer provide proof with either a tracking number and/or the shipping receipt.

For reference, here is a link to our Terms of Service [LINK TO TOS]. Attached you will find confirmation of delivery to the customer, a screenshot of the order details and a screenshot of all communication with [CUSTOMER NAME].

Include the following attachments:

1. Screenshot of the delivery confirmation
2. Screenshot of the order details including
3. Screenshot of all communication with the customer

If a customer issues a chargeback on the basis that they did not receive a refund, but you do not have a request for that refund

[CUSTOMER NAME] recently submitted a chargeback on the grounds that they did not receive a refund. Upon investigation [YOUR SHOP] has found no evidence of a refund request from [CUSTOMER NAME]

Our Terms of Service clearly states that refunds will only be issued after a customer returns the product(s) and provides proof with a tracking number and/or the shipping receipt.

For reference, here is a link to our Terms of service [LINK TO TOS]. Attached you will find confirmation of delivery to the customer, a screenshot of the order details and a screenshot of all communication with [CUSTOMER NAME].

Include the following attachments:

1. Screenshot of the delivery confirmation
2. Screenshot of the order details
3. Screenshot of all communication with the customer

If a customer issues a chargeback on the basis that they were not satisfied with the product

[CUSTOMER NAME] contacted [SHOP NAME] on [DATE OF FIRST CONTACT] and explained that the product they received was not acceptable because [INCLUDE CUSTOMER REASON]. In response, we sent a request for photo or video evidence that would demonstrate the issue.

Our Terms of Service and Refund Policy both explicitly indicate that the customer must provide evidence in the form of photo or video in order to receive a refund. As of today, we have not received such evidence.

The customer received the product, please find the tracking number [TRACKING NUMBER] and tracking link:[TRACKING URL].

Include the following attachments:

1. Screenshot of the delivery confirmation
2. Screenshot of the order details
3. Screenshot of our Terms of Service/Refund Policy, indicating that no refund will be provided without photo or video evidence

Why do Disputes, Claims and Chargebacks matter?

Having an influx of consumer disputes can hurt your account. Many disputes can result in lost revenue, even when you deliver the product! Disputes can also trigger an account review, requiring that you assemble various documentation. In some of the most severe cases disputes can result in a total account ban.

What’s a PayPal Review?

What triggers a review? PayPal’s Risk Underwriting team may review your account for several reasons. Typically, the main reasons for a review are:

• Standard annual review when your business is above a certain spend level (typically this seems to be $1M or more)
• An sudden, sharp influx in dispute and chargebacks OR a sudden increase in sales volume

What’s to do if your account goes under review?

Understand why you are being reviewed.

First things first, understand why you are being reviewed. You should respond to the email right away to ask what prompted the review, what actions PayPal is considering and what information would lead to a more favorable outcome. A human will respond to you. This is like having the “answer key” before taking a test!

Prepare the requested documentation

When facing a review your PayPal contact will likely be explicit in what they ask for so you’ll need to prep your financial documents. They are often looking for up to two years of audited financials (income statement, balance sheets, processing statements, etc). Prepare and organize the requested documents so that your PayPal representative can easily find the information they’re looking for.

When preparing your review response it’s important to keep in mind that PayPal ultimately cares about the health of your company and that the overall number of disputes is low, the business itself has low risk and that you have measures in place to mitigate issues. Here are some factors that PayPal is looking for:

• Your company has been in business for a long time
• Your business has ample cash reserves
• You consistently fulfill customer orders promptly and add tracking numbers
• You have happy customers and the reviews to prove it

For example, if you had delayed fulfilment during the holidays, like many, you’ll want to explain to PayPal how you will avoid this issue in the future and outline the process for their review. If you initially couldn’t meet demand due to a surge in volume you may now have more inventory in your fulfillment center as a response.

Position your business so you can quickly react

Tracking Numbers

Provide tracking numbers, especially if requested. When providing a tracking number choose a provider that PayPal can verify via the API. For example, carriers like ePacket and Special line are not approved, but UPS is.

Minimize Dropshipping Risk

While Paypal technically accepts dropshipping businesses, they perceive these businesses as higher risk. This is because even if you as a merchant do your job of selling products and capturing payment, you cannot control a 3rd party to produce your product and deliver it to the customer. In short, when you don’t control the end to end customer experience, there is more risk. Your job in the risk process is to clearly identify the risks and how you mitigate them.

For example, is this fulfillment partner based in the USA? How much business have you done with them? How is their financial health?

Care about end customer experience.

Show that you are delivering products quickly, the shipping times are clearly stated on the website and in confirmation emails, and that you have a customer service team in place to quickly respond to customer inquiries.

Tips

• Ask for a meeting with your PayPal representative or reviewer to better understand the situation.
• Develop a relationship with your reviewer and find out what they care about in regard to your dispute. Ultimately, your reviewer will set your reserve amount, or will advocate on your behalf to a higher level underwriter.
• Ask for options for the final result. For example, you may be asked if you prefer a rolling 10% of profits withheld for 90 days, or 5% for 180 days. (Here I would choose 10% for 90 days so that the money is out of a reserve faster)

How to get your reserve lifted

Typically PayPal will reevaluate a reserve every 6-month, but you can ask for a re-review periodically. Typically about once per month is acceptable. When asking for a re-review, you need to give PayPal a reason to lift the reserve, you should show what has changed or improved in your business. For example, you’ll want to mention if fulfillment times have come down, you have improved your product or support, or your company is in better financial health (lots of cash in a bank account). Send documentation to prove it too!

What is the outcome of a review

Depending on PayPal’s assessment of your account a review can have several different outcomes. Ideally, the outcome would be nothing!

A review could also result in a reserve. There are several different types of reserves:

• Base reserve: eg. $25,000
• Percentage withheld: eg. 5% or 10%
• Time length: eg. 180 days or 90 days.

Pro-Tips and Tricks

Get an Account Manager

If you’re processing more than $1M/year, you’re eligible for a dedicated account manager. For larger stores it’s a must-have. Account managers can typically be reached directly by phone if you have an issue and they offer invaluable support.

Lower your Payment Processing Rates

If you are consistently fulfilling your products early and keep your dispute rate down, you can ask PayPal to review your payment processing rates. You will be asked to provide company financial statements, including an income statement (P&L) and a balance sheet.

PayPal Cares Most About Their Risk

Achieving the following will help you minimize PayPal’s risk which will minimize yours

• A track record of fulfilling orders on time and uploading tracking information to Paypal is crucial. Simple Seller Protection does this automatically, download it, it’s a no brainer.
• Having a low dispute rate and high win rate improves your reputability.
• You need a healthy balance sheet. PayPal wants to know that you have the cash available to cover your expenses in times of a business interruption.
• Control over your supply chain. This can be tough for dropshippers, but PayPal will perceive you as having low risk if you have some sort of control over your supply chain. Once again be transparent with PayPal. Share your invoices, agreements with suppliers, even payment terms. For example, it’s helpful for merchants to receive payment from customer right away, but pay their suppliers only when the products are delivered successfully. This might not always be possible at first.

If you want to try some of these best practices, check out Simple Seller Protection, a Shopify App that automatically syncs tracking numbers and responds to PayPal disputes. My team built this app after working with thousands of Shopify merchants and winning 95% of disputes for them.