Best tips on how to prevent PayPal chargebacks in 2023

Does the term "chargeback fraud" ring a bell?

People might dismiss it as one of those innocuous jokes that aren't worth getting worked up about. However, according to Juniper research, chargeback fraud cost sellers about $20 billion in 2020. Approximately 75% of eCommerce businesses reported increased fraud attempts, including chargeback fraud!

The truth is, even though Chargebacks were initially created as a vehicle to protect consumers who visit online vendors, several fraudsters have abused them to defraud unsuspecting online vendors. This explains why Chargeback911 reports that 86% of chargebacks are most likely cases of friendly fraud.

Of course, all hope is not lost. There are measures that you can take to prevent chargebacks on PayPal.

Workee not only provides you with the tools you need to run your business, but we also provide you with useful content to help you along the way. In this article, you'll learn about some of the best ways to avoid fraudulent PayPal chargebacks. Let's dive in!

What are chargebacks?

To be on the same page, let’s first define the term chargeback. It is a process through which customers can dispute a transaction they have made with a merchant and request that their bank reverses the charge.

This may happen if the customer is not satisfied with the purchase, if they did not authorize the transaction, or if the item they purchased did not arrive or was not looking like what was displayed on the website it was gotten.

When a chargeback is initiated, the funds transferred in the original transaction are returned to the customer, and the merchant is usually charged a fee as a punitive measure.

How does PayPal chargeback work?

Does PayPal prevent chargebacks? Not necessarily. However, they facilitate the process to ensure that buyers' interest is covered. Chargebacks can be a real headache, but don't worry; the process is in place to protect both buyers and sellers. When a buyer requests a chargeback, the credit card company sends a notification to the merchant bank - in this case, it's PayPal.

PayPal will then take the funds related to the chargeback and put them on hold, temporarily removing them from the seller's account. The seller will then get an email notification and be given the opportunity to provide any relevant information to dispute the chargeback, such as proof of purchase or delivery.

It's important for the seller to respond promptly to any chargeback notification and to provide any relevant information as soon as possible. Failure to do so can lead to the chargeback being ruled in favor of the buyer by default and the seller losing the funds in question, in addition to a $20 fine.

Furthermore, it is critical to note that sellers can dispute the chargeback with proper evidence, like tracking numbers and delivery proof. Still, it would be up to the credit card company and issuing bank to determine the case. What is the difference between PayPal Chargebacks and PayPal Claims?

A PayPal chargeback and a PayPal claim may seem similar, but they are two different beasts. A chargeback is when a customer contacts their credit card issuer to dispute a transaction they made through PayPal. This prompts the credit card issuer to initiate a chargeback, which means PayPal must give the customer's money back and takes the funds out of the merchant's account. The reasons for chargebacks can vary, from fraud to not receiving goods to unauthorized transactions. 

On the other hand, A PayPal claim is a little different process; it happens when a customer contacts PayPal directly to request a refund, which PayPal then investigates internally and decides the next steps.

A customer can file a claim if they did not receive the item they purchased or if the item they received was significantly different than what was described. When a claim is filed, PayPal will investigate and decide who should receive the funds. The claim process is typically quicker and less formal than a chargeback process and does not involve the customer's credit card issuer. PayPal doesn't prevent chargebacks or claims.

Please note that chargebacks are generally considered more serious than claims, as they indicate that the customer has not been able to resolve the issue directly with the merchant and has had to involve their credit card issuer. This can negatively impact the merchant's account and ability to accept future credit card payments. In the next section, we will review methods to prevent PayPal Chargebacks.

How to prevent chargebacks on PayPal

On PayPal, preventing chargebacks is not as difficult as you may have imagined. Preventing chargebacks on PayPal is possible if you do the right things. Here are a few steps to help you thwart chargebacks on PayPal.

  1. Clarify return policy

Most legitimate cases of chargebacks happen when a buyer is unsure how to return a product they are unsatisfied with. A clear return policy makes it easier for clients to return your products in fairly good condition rather than filing for a chargeback. This step alone will significantly prevent several PayPal chargebacks.

2. Create tracking numbers for all shipments

One major excuse for fraudulent chargeback requests is that buyers claim to have never received the product. This excuse will be significantly eliminated when you use tracking numbers for all your shipments. With tracking numbers, you can determine whether the buyer received the product. This is a creative way to prevent chargebacks on PayPal. 

3. Have a nonrefundable payment policy

When your buyers know that their payments for your products are not refundable, they are less likely to file for a chargeback. This is another way to prevent chargeback on PayPal.

4. Maintain proper records of all processes

Maintaining accurate records of all transactions, including customer names, addresses, phone numbers, email addresses, transaction dates, etc., makes it is easier to defend chargeback cases. When frauds notice that your records are always straight, they will back off from hunting your business. This is how to prevent chargebacks on PayPal.

5. Respond promptly to customer complaints

Responding on time to customer complaints and inquiries will make them less likely to file for chargebacks. Additionally, customers are generally more pleased patronizing a business that responds promptly to their queries. This is a proactive way of preventing PayPal chargebacks.

6. Stick to the rules

A smart way to avoid being slammed by the rules is to obey them. Ensure you follow all of PayPal's terms of service. If your account has a history of chargebacks or disputes, it may be more likely to be flagged for additional reviews in future cases. This is a straightforward way for PayPal to prevent chargebacks.

7. Leverage PayPal's IPN service

If you sell digital products like eBooks, Software, etc., you can use PayPal's IPN service to confirm purchases instantly and send access to the product instantly. 

8. Stay transparent

Being honest and transparent in all your deals is another way to prevent chargebacks on PayPal. It earns your consumers' trust and makes it easier for you to defend any case brought against you.

How to resolve chargeback on PayPal

If you have been notified about a chargeback claim, here are a few steps to help you resolve the case:

  • Access your PayPal account.

  • Go to the Resolution Center within the account.

  • Look into the chargeback notice or check up on an ongoing one.

  • Provide the necessary information, including transaction records and shipping proof, to dispute the chargeback.

  • Allow the chargeback specialist to speak on your behalf to try and reclaim funds from the buyer's credit card company.

  • If the credit card company sides with you, the buyer will be charged, and the funds will be released to you.

  • If the buyer wins, the transaction will be canceled, and they will receive a full refund.

Closing Thoughts

PayPal Chargeback frauds cannot be wished away, and as statistics have shown, it is set to increase in 2023. Protecting your business from this fraud is possible if you are strategic. The points discussed above will help you prevent PayPal chargeback.

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