Understanding Chargebacks

This overview is designed to help you better understand chargebacks. You'll learn how to work with PayPal to dispute a chargeback and how to spot and prevent situations that might lead to chargebacks.

What is a chargeback?

A chargeback occurs when a buyer asks their card issuer to remove a charge from their card statement. The card issuer will ask the buyer to provide an explanation about why they are disputing the charge.

Two common reasons for reversals or chargebacks are:

  • A buyer's card number is stolen and used fraudulently

  • A buyer makes a purchase, but believes that the seller failed to fulfill their side of the agreement (e.g. did not ship the item, shipped an item that was very different from the seller's description, or the item was damaged when the buyer received it).
How does PayPal notify a seller when a chargeback has been filed against them?

When PayPal is notified that a buyer has filed a chargeback against a seller, PayPal immediately emails the seller. Then, the seller can log into their PayPal account and go to the Resolution Center to monitor the status of the case and provide information to help resolve the matter.

How can a seller recover funds when a chargeback occurs?

When a chargeback occurs, the money that is subject to the chargeback is deducted from PayPal's bank account. In turn, PayPal places a temporary hold on the same amount in the seller's PayPal balance (i.e., the funds are restricted).

The seller and PayPal can work together to dispute the chargeback with the buyer's card issuer. While the chargeback is being disputed, PayPal will debit the seller for the amount in question. If PayPal and the seller ultimately win the chargeback dispute, the card issuer will reimburse PayPal for the chargeback and PayPal will transfer the recovered funds back to the seller. Depending on the card issuer involved, the process may take up to 75 days. In a dispute over a chargeback, the decision is ultimately made by the card issuer and PayPal cannot control the outcome.

How do PayPal and the seller work together to dispute a chargeback with the buyer's card issuer?

Sellers can provide PayPal with evidence to dispute the chargeback through the Resolution Center, by email at chargeback-response@paypal.be, or fax. PayPal uses this evidence plus any evidence PayPal may already have to investigate the chargeback with the buyer's card issuer. Because of deadlines imposed by the card issuers, sellers must respond quickly (usually within 10 calendar days) once they are notified of a chargeback. Response deadlines can be found in the email PayPal sends to the seller when notifying them of a chargeback.

PayPal reserves the right not to dispute a chargeback even if the seller has provided some evidence, particularly if PayPal believes the dispute is not likely to be successful.

Why do some chargebacks occur so long after a seller receives the payment?

Certain laws and credit card issuer policies usually allow buyers to file chargebacks weeks or sometimes months after the initial transaction occurs. If a buyer waits to file a chargeback, a seller may encounter a temporary hold on funds in their PayPal account for a transaction that occurred weeks or months ago.

What are some best practices for avoiding chargeback losses?

  • Follow the Seller Protection Policy guidelines by shipping to the buyer's address listed on the Transaction Details page and by retaining proof of delivery that can be tracked online.

  • Describe the item that you are selling in as much detail as possible and as accurately as possible. Include pictures, measurements (if applicable), and other relevant specifics.

  • Make every effort to know your customer and to respond promptly to any customer service requests.

  • Keep as much information as you can about the transaction and your customer, including any emails or other correspondence.

  • Publish your return policy in your auction listings or on your website. Also include your policy in email correspondence with your customer. Please note that certain laws and credit card issuer policies provide that buyers may have chargeback rights for merchandise that is not delivered or is defective, even if your policy indicates that all sales are final and that you do not allow returns.

What information can a seller provide to increase the chances of winning a chargeback dispute?

Some types of information that sellers can provide to PayPal to increase the chances of winning a chargeback include:

  • Proof of delivery, such as online tracking numbers

  • Copies of the original item description or auction description, including any photos

  • Proof that the buyer was already refunded

  • Proof that the buyer was provided with a replacement product

  • Correspondence with the buyer or feedback from the buyer

  • Any agreements signed or accepted by the buyer at time of purchase

  • Any returns policy that was communicated to the buyer
Does receiving a chargeback affect a seller's eBay feedback?

The chargeback system is independent from eBay feedback. Filing a chargeback does not limit a buyer's ability to leave feedback for a seller. In fact, a buyer can file a chargeback even if they have already left positive feedback for the seller. Receiving a chargeback does not negatively impact a seller's eBay feedback rating.

Where can I get more information?

We've created a step-by-step guide to help you through the chargeback process. Take a look at PayPal's Chargeback Guide.