PayPal as an online payment method is everywhere. Security advantages mean that many people flat out refuse to buy from sites without it, and the convenience of it’s one-click service means much higher basket-to-sale conversion rates than for manual checkout alone. Fully half my online sales are from PayPal. If you are running an online store you can do your own anecdotal research; just trade for a month without PayPal enabled at checkout, and compare your sales to a month with PayPal enabled.
However, if you are going to use it without risk to your business there are some things you definitely need to know.
PayPal is a well established company used for accepting and sending money online without having to divulge your card or bank details to the website you are purchasing from. It has been somewhat revolutionary in ecommerce terms, as it has enabled very small businesses and private individuals to accept card payments without having to set up expensive merchant accounts with a bank, and has allowed consumers to buy from these sellers without fear that their small size meant they were fly-by-night con artists or too small to have reliable card security measures. So far so fifteen years ago…
Now there are other companies providing the same or similar service, but none (yet) with the standing or ubiquity of PayPal, and this article does not deal with them.
PayPal has not been without its problems. For a long time they had a (deserved) reputation for arbitrarily freezing people’s accounts, being incredibly difficult to contact, and for not giving good reasons or listening to evidence when you did manage to get their attention. There are many personal stories even now warning that PayPal can and will ruin your business and your life, and steal your money into the bargain.
PayPal is now much more thoroughly financially regulated, and the situation has improved a lot from how it was in the early days. Now most of the problems small businesses run into are due to a lack of awareness, or purposeful avoidance, of the selling rules. Here are the things you need to know to trade safely using PayPal:
1. Use a business account if you are a business! PayPal are required by law to get certain information from you, and help prevent fraud and tax evasion. If you have a personal account used frequently for business use it may look suspicious, and you can expect a funds freeze while they investigate, at the very least.
2. Sign up with your real name and address! You will be required at some point to send them proof of your legal identity and real address. This is unfortunate, but true for every bank. If you’ve established an account in a pen name or stage name you will end up being unable to continue to use it.
3. Don’t choose ‘Send money to friends and family’ unless that is exactly what you are doing! If your transaction goes badly, you don’t recieve your goods, or recieve less service that you paid for you have NO comeback. None at all. The complaints procedure is completely unavailable for these transactions.
4. If a seller asks you to use ‘Send money to friends and family’ so they do not have to pay a seller’s fee, don’t do it! Even if you don’t care about having a complaints procedure, this can put your account in danger! ‘Friends and family’ transactions can still look like business sales, either due to item names, the fact you are paying a business account (and you can’t always tell), or just because a bunch of transactions like yours went through the other seller’s account. If PayPal identifies these as suspicious you could end up with your account frozen, jeopardising all your other business transactions and any funds you have! It is completely unprofessional (but all too common) for a seller to ask you to use this option – it is fraudulently depriving PayPal of their fee! The fee is also very small, and commensurate with normal bank fees for the service PayPal provide. I always question doing business with people who are so greedy about such small amounts – any business/pricing model should be able to cope with banking fees, and if they are happy to flout rules on this what else are they flouting?
5. Be very careful which buttons you incorporate into your website! If you choose the wrong one you will lose any cash you have collected with it, sometimes minus a fee! Don’t rely on your judgement, look at the PayPal rules. A prime example of this is misuse of the ‘Donate’ button. DO NOT USE the ‘Donate’ button unless you are a registered charity or non-profit, it just isn’t worth the risk. Instead, try using something that reads ‘Buy me a coffee’ or ‘Support our Podcast‘ – just don’t use the word ‘donate’.
6. ‘Charge backs’ are normal, so always communicate plenty with your customer. A ‘charge back’ is when your customer has reported your sale as an unrecognised or unlawful transaction in their account. This could be because they didn’t recieve their goods, they were not of the promised quality, or simply that the customer is deliberately lying in order to reclaim their money. They are a usual thing for businesses to deal with occasionally, and international banking standards give the benefit of the doubt to the customer and take the money immediately from your business account. The onus is then on you to prove that the transaction was authorised by the customer originally, that the goods arrived, etc. You can do this by showing order confirmation emails, postal receipts, etc.
7. Which brings me nicely to the last point. Never, ever, ever use Paypal to accept a payment and then post the item without recorded delivery or allow the buyer to collect, unless you are okay with potentially losing the money. The only time you will ever be covered for your loss when a payment is reversed is if you have posted within seven days using a tracked form of delivery. A popular scam is for buyers to insist on collection, then reverse/chargeback the payment – you are left with no recourse. Do not allow collections paid via PayPal – only cash or card at the premises upon collection. Send large or international orders in a way that gets a signature on delivery. Weigh up for yourself whether spending more on signatures for small orders is worth more than just replacing orders which somehow go astray and don’t arrive.