5 months ago we launched a service-as-an-app that sends tracking numbers from Shopify to PayPal (https://addtrackinginfo.com). We learned a lot of gimmicks about PayPal’s inner workings and we want to share them with you. PayPal is a really great payment processor, that customers trust and are familiar with, but it does take a bit of effort to make it work flawlessly.

One of the best things about PayPal is that they actually let you start receiving money way before they actually check all the details of your business. Unlike other payment providers, which request loads of documents before opening an account and usually take about 10-15 days before approval.

The most annoying thing about PayPal is the amount of rules they have in place. As their business is also buyer-facing, PayPal has to pay close attention to merchant accounts. If red flags are raised, they will place account limits/reserves or delay releasing funds. This is why you have to be prepared.

Here’s what we learned so far:

1. Reserves

Reserves are a common industry practice and are used to minimize losses and create a safer shopping experience (Stripe, Shopify Payments, Paymill, 2checkout have them as well). If a seller would go out of business, payment gateways would still need to repay the buyer. If a buyer contacts PayPal or their financial institution because they didn’t receive what they ordered, they’re responsible for making things right.

PayPal mentions two types of reserves: rolling reserves and minimum reserves.

When reality hits you.

Minimum reserves are rather rare – only 5% of our clients that have reserves applied to their account have a minimum level set up:

Minimum reserve: 100% will be held in your account until $26,000.00 USD is reached.

We have seen way more cases of rolling reserves, so we will focus on those. This is what they look like:

Rolling reserve: 35% will be held in your account for 60 days.

What this means is that every time you receive a payment of let’s say $100, $35 of it will be unavailable for 60 days. That’s not very cool for your cashflow, is it?

We’ve seen reserve levels ranging from 5% to 43% and release periods of 30 to 180 days.

95% of our clients who have reserves, have over 1,000 orders, which makes us believe that that’s the minimum limit after which PayPal starts paying attention to your account.

More information on PayPal’s reserves can be found here.

If you do get a reserve, you might be able to negotiate to have it lowered, or even removed. For this you need to do two things:

  1. Keep your account in perfect standing by answering helpfully to all disputes and adding shipping information to all orders. This is especially important for dropshippers, as this is considered by PayPal a high-risk business model – so everything should be done by the book.
  2. Call PayPal and make the case that you are really trying to do things perfectly.

2. Tracking Numbers

Adding tracking numbers is PayPal’s #1 best practice for sellers. When you add tracking information, customers receive an e-mail from PayPal with this information. It’s very rare that buyers will open an “Item not received” dispute when they can see a valid tracking number that they can check. And as you will see below, disputes are the worst signal you’d want to send PayPal about your account.

By the way, PayPal does check the tracking numbers you add, so make sure to use real ones. There are services on the Internet that promise to sell you “real-fake” tracking numbers. Do not risk having your account limited.

PayPal does check the tracking numbers you enter.

A quick plug: We are https://addtrackinginfo.com – which means, you guessed it, we add tracking numbers to your PayPal transactions. Our team of qualified VAs is quick and precise. You can try the service for free – every store gets 50 free credits / month.

3. Disputes

What’s true about problems is also true about disputes: everybody has them, but not everybody knows how to respond to them. What we learned is that it’s in your best interest to avoid getting disputes altogether, but inevitably you will start receiving some as your volume grows. The two most common types of disputes are the “Item not as described” and “Item not received”.

Our recommendations are:

  1. Try to address customer concerns when they contact you by email / through the website – and do this as soon as possible. Don’t procrastinate! If you don’t know what to reply at that moment it’s always better to simply write something like “I’ll look into this issue right away and I’ll get back to you in the next hours, hope that’s ok!“, rather than postpone and forget about it. Customers are not known for their patience and they’ll soon open a dispute if they feel you’re not responsive.
  2. If you still get a dispute – answer it and try to solve it ASAP. It’s always better than having the customer escalating it to PayPal. Feel free to use our suggested templates:

For “Item not as described”: you are most probably better off just refunding the buyer without much back and forth. Especially if you are working with a new vendor, your product’s quality might fluctuate so the buyer might be right about his claim. A good answer would be:

Hi {name},
We are sorry that you are not completely satisfied with our product. To make up for it, please accept a 10% discount code towards your next purchase, together with the full refund of this payment. Your discount code is: “WELOVEYOU23”
Looking forward to see you again on our shop.
Best,
Ana

For “Item not received”: The first thing you need to do is to prove that you did ship the item. Ideally you would have added shipping information as soon as you shipped the item. Once you add shipping information, you can use one of the tracking aggregators, such as 17Track or Cainiao, to verify if the tracking number already exists in the systems. Tracking numbers take between 5-10 days to activate when shipping from China (most of our high-volume clients are dropshipping, so this is the most frequent dispute type that we see).

Every “Item not received” dispute needs shipping information.

Depending on their messages

Hi {name},
Here is your tracking link:
{tracking_url via Cainiao, 17Track, Aftership or other app }
As you can read on our website the item your ordered has a delivery time of 2-4 weeks.
Best,
Ana

Hi {name},
So sorry for not responding to your Facebook messages. We get a high volume of messages and usually reply faster via email. So sorry again for this!
This is the tracking number for your order: {tracking_number}. And you can track it here via USPS:
{tracking_url}
The order tracking shows that it has been with USPS since ____. Can you please call them to have the package forwarded to your nearest local post office?
Please let us know if any issues arise and we are here to help. If you want to talk via email, you can also contact us at {shop_email}.
Thanks!
Ana

We’re preparing a guide with more templates so email us if you want to be notified about them.

Keep in mind that if you don’t respond to disputes in the allocated time (usually 10 days), the case will be decided in the buyer’s favour and they will automatically be refunded.

4. Account types

Shopify requires a business PayPal account to operate. You can easily upgrade your personal PayPal account to a business one, although our recommendation is to set up a separate business PayPal account for your company.

5. Loans

If for whatever reason you are having cash-flow issues (reserves maybe?), you might want to try applying for PayPal Working Capital. Many of our clients have loans on their accounts, so this seems to be a popular facility.

6. Seller Protection

PayPal protects you when a buyer claims that:

  1. They did not authorize the payment from their PayPal account. One thing to note here is that if someone accesses another person’s PayPal account and makes a payment, PayPal will NOT consider this an unauthorized transaction, so you’re safe.
  2. The buyer didn’t receive the item from you (referred to as an “Item not received” claim). In this scenario, if you have sufficient evidence that you did ship the item (starting with shipment tracking information and going as far as actual invoices from the shipping company showing the buyer’s address), PayPal will disqualify the claim.

You can read more about PayPal’s Seller Protection program here.

In conclusion, keeping your account clean (by adding tracking information and answering disputes), as well as staying in touch with your PayPal representative is the best chance you have to have a solid PayPal account with low/no reserves.

We hope that you learned a thing or two about how to maximize your collaboration with PayPal. If you have further questions, you can reach us by email at hello@addtrackinginfo.com.