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What Sellers Should Know Before Using PayPal

January 5th, 2009

paypal-logo.jpgEarlier tonight I managed to procure this article on PayPal after having some more adventures on the DigitalPoint forums. The original version contained six instances of your vs. you’re errors, which gave me the opportunity to provide the author with a nice little English usage lesson. Although I have had to do some editing to bring the quality up to snuff, it’s still a pretty good article considering the frequency of garbage-level content that is often traded on the forums.


According to PayPal, there are over 164 million PayPal accounts in over 190 countries. Just by visiting any e-commerce message board where people buy, sell, and trade, you will find that almost everyone is using PayPal as their payment service provider (PSP). It’s one of the easiest ways to accept payments from another person, but after looking through the forums you can see that PayPal also has a dark side. One of the biggest problems I have found is merchants selling digital goods and then getting a chargeback after they deliver the goods. For those unfamiliar with the term “chargeback”, this refers to a situation in which the buyer of a product or service disputes the charges on his or her account.

As a practical matter, you are generally more likely to win the lottery than to win a dispute with PayPal when it involves selling digital products or services. The biggest reason for this is that they make it nearly impossible for you to provide sufficient proof that you actually delivered these products or services. Emails and server files are insufficient proof as far as PayPal is concerned. PayPal will almost always side with the buyers and protect them, while leaving the merchants at a loss.

PayPal works overtime to find merchants that break their terms of service (TOS) agreement. You can find PayPal’s TOS agreement on their site; it is advisable to read over it very carefully before you decide to use PayPal as your payment service provider. Note that virtually all adult content can’t be sold using PayPal, and the same goes for pharmaceutical products, gambling-related items or promotions, and anything to do with multi-level marketing (MLM) programs. The MLM restriction also includes seemingly innocuous entities like paid-to-read (PTR) types of sites if they pay members on more than one level of referrals. Running afoul of these types of restrictions is one of the most common mistakes I have seen webmasters make.

If you happen to engage in one of the restricted activities, or if your account shows signs of “unusual activity” (such as your account being hacked and used to make relatively large transactions), PayPal will lock your account and hold all your money for 180 days. After this period has passed, you will eventually be allowed to withdraw it to your bank account or accept it in the form of a check. Always keep some kind of proof of what you are selling when using PayPal. You could be doing nothing wrong and still get your account locked. Keeping good records and proof of what you are selling can go a long way if this happens. PayPal will request sale receipts and other forms of proof such as the seller’s name, phone number, and address. If you have these things it will speed up the process of getting your account unfrozen. If you don’t have any proof or you were actually breaking PayPal’s TOS, then you can forget about having the use of your money for at least 180 days.

PayPal has a relatively robust system for preventing fraud. You will need to verify your account or credit card before you can make many transactions with it. This is good for purchasing consumers because there are often problems with dishonest people using stolen credit cards online. Unfortunately, in spite of PayPal’s security measures, some people still have problems with their accounts being stolen and used. If this happens and you are the seller of a product or service, you’re likely to lose your money if the PayPal account was stolen. If you are selling a high dollar item, I would ask for an address and phone number so I could verify it. Don’t depend on PayPal to do it or you could lose your merchandise. Remember they will not know it until the transaction has taken place and the real account holder files a complaint, which could take several weeks. This is usually not PayPal’s fault because the account holder is responsible to keep his or her account details safe, and in many cases they don’t do the proper things to protect that information.

Overall, PayPal is still a good solution for novice webmasters who want to begin accepting payments online. Just remember these few key points when obtaining a PayPal account. You should look over the whole site and read everything before you open an account with PayPal. Keep in mind that you are still at risk of losing money if you should encounter serious problems with this well-known payment processor.



3 Responses to “What Sellers Should Know Before Using PayPal”

  1. comment number 1 by: Ron

    Great article. PayPal has held $1200 of my money for no reason at all. My customers received the product and did not request a charge back. PayPal will give me no explanation what so ever. accept-credit-cards-online.com set me up to accept credit cards on my website. No Contract or Cancellation Fee. I have had no chargebacks or any issues at all with this company. Lowest rates and fees I could find.

  2. comment number 2 by: Jay

    Great article! PayPal has the lowest fees that I have found to use online.

  3. comment number 3 by: Cosmos

    Quite useful post!

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