How to build a successful dropshipping business with PayPal

May 31 2021 | PayPal editorial staff

How can PayPal help you succeed in dropshipping? Mordechai Arba – entrepreneur, founder of Ecomhunt and dropshipping expert – shares his tips for building a better dropship business with PayPal.
Dropshipping is a popular model for online selling. Because dropshippers hold no inventory of their own, there’s a low cost of entry and relatively low risk.

It’s fast-paced (momentum and cashflow are key) and success can come quickly. But it’s also easy to make mistakes. If you don’t avoid the pitfalls, problems can grow quickly, too.

Mordechai Arba is a serial entrepreneur and dropshipping fan.

“It’s not easy,” he told us, “but, compared to other industries, I think dropshipping is one of the fastest ways to go from nothing to an annual profit of 5, 6, or even 7 figures.”

Mordechai launched several successful dropshipping sites before founding Ecomhunt, a business dedicated to supporting dropshippers in the time-consuming task of finding products to sell.

“It may be easy to get started,” he cautions, but if you’re buying into dropshipping, you need to remember it’s a business like any other business. You need to treat it like a real business and invest in your customers, find high quality products, make your own videos and build something real for the long term.”

That means also paying attention to your reputation. If your business gets poor online reviews, it’s ranking on channels like Facebook will be affected. If your PayPal account receives too many registered disputes or chargebacks, then you may find your account is restricted or some of your funds put on hold. You can avoid this by building a healthy profile and looking after your customers.

Here are 5 ways to set yourself up for success using PayPal for your dropshipping business.
 

1. Start with a PayPal Business account.

Make sure you open a separate PayPal Business account for your business, even if you have your own personal account. Complete all of the information requested regarding business ownership, stakeholders and legal details.

This is the first step towards building a healthy seller profile with PayPal. It’s a good idea to proactively upload information such as financial statements and bank statements. This helps PayPal to see that you operate a genuine, well-run business.

As Mordechai says, “Instead of waiting for PayPal to ask for this information, you should be proactive and approach PayPal to validate your account. Providing information in advance prevents problems in the future.”

All businesses are subject to risk reviews by financial partners like banks. PayPal does the same. If your new dropshipping business becomes successful very quickly, and PayPal has no information about the business on file, it will request that you provide it. This could cause delays at the point you most need to be concentrating on serving your customers.

“The worst case is that your account gets blocked until you provide the information,” explains Mordechai. “That can kill your cashflow and kill your campaign. You’ll lose momentum and it’s super-hard to restart the engine again.”

It’s important to start in the right way, by providing the information that shows you have a genuine business.

Also, make sure you read and understand PayPal’s Acceptable Use Policy.

“The first thing to do is to learn PayPal’s policies and terms of use,” says Mordechai. “Too often, people simply click to accept the policy without reading it. Then they run into problems when they break the rules without knowing.”
 

2. Communicate well about shipping.

Many customer complaints and disputes arise because of shipping.

“There is an expectation gap between what customers want and what dropshippers can provide,” says Mordechai.

“One of the main problems that dropshippers face is that they are often shipping from China and delivery time will be at least 10 days,” he explains. “But customers in the US are now used to same-day deliveries. So, they will wait maybe 5 days but then go straight to PayPal and register a dispute or a chargeback.”

The challenge for dropshippers is that, in these situations, customers will often go directly to PayPal rather than contact the seller first, so dropshippers don’t have an opportunity to explain the situation or address customers’ concerns.

To minimise these situations, always provide clear and accurate information about delivery times.

“The best solution,” Mordechai believes, “is to be as transparent as you can with customers. Start by providing the expected delivery time on the product page before they buy, then remind them at checkout as they choose their preferred shipping method. After they buy, you can send emails or SMS updates to let them know progress. Simply being transparent with customers can reduce complaints and disputes by around half.”

Using reliable and well-known shipping agencies (such as DHL, UPS, FedEx etc) can improve your delivery service and give customers added confidence.

Make sure you always provide customers with a tracking ID number so that they can see where their package is and, of course, always process orders and ship products the day they are received.
 

3. Sell quality products from reliable suppliers.

Product quality is another major source of customer complaints and disputes.

Many dropshippers never see the products they are selling, but if you are building a serious business, you need to be sure of the products you sell.

The first step is to examine samples of the products you sell so that you understand their quality, features and functionality. Over time, you will build a good reputation and repeat customers if the products you sell are of good quality and meet customers’ expectations.

Next, always use accurate and informative product descriptions on your site. Online customers can’t see and feel the products you sell, so help them out with full descriptions that include all the relevant information, for example: materials (wool, silk, etc), functions (for electronics and tech equipment), dimensions, battery requirements etc.

Always use high quality imagery and videos to show the product. Images are especially powerful on social media, so invest the time to show off your products in the best way.

Choose reliable suppliers that have top ratings and excellent feedback on sites like Alibaba / 1688.com, Salehoo and Ecomhunt and examine the profiles and ratings of possible suppliers.

It’s a good idea to build relationships with a small number of trusted suppliers rather than switching suppliers regularly. Setting up legal agreements or contracts with your suppliers can ensure you have agreed service levels.

Always adhere to PayPal’s Acceptable Use Policy (AUP). PayPal forbids the use of its services for transactions involving certain products (for example, narcotics, cigarettes, ammunition and firearms). Other products and services require pre-approval from PayPal. Always check that the products you intend to sell fall within the terms of the AUP.
 

4. Invest in customer service

Complaints, disputes and chargebacks can damage your business. Not only will you lose customers and develop a poor online reputation but, if levels of chargebacks and disputes logged on PayPal get too high, then your account may be restricted.

It’s important to deal with all questions, complaints, disputes and chargebacks quickly to prevent them escalating. To achieve this, you need strong customer service processes and an adequately sized team in place.

The following tips can help you deal with customer queries and complaints quickly:
  • Make it easy for customers to contact you. Put contact details on your website and make them easy to find. Use an online contact form and offer live chat support if you can.
  • Set a service level to make sure all customer messages are dealt within a certain timeframe. You should aim for 24 hours as the longest acceptable time – faster is better.
  • Consider using automation software to collate customer queries from your different channels (e.g. Facebook, Instagram, website, email etc) and send initial, automated responses where appropriate.
  • Be human. It’s easy to sound robotic when responding to complaints, but handling queries and complaints in a sympathetic, human manner can help to defuse situations and prevent customer escalating their concerns into a formal dispute.
Mordechai also suggests using the PayPal Disputes page to connect with customers directly.

“You can add a note on the PayPal Dispute page on PayPal,” he says. “Ours reads, ‘Before opening a dispute, please consider sending our support team a message so we can try and resolve your problem quickly, without involving PayPal in the middle.’ It’s a very honest message to customers saying we’d be very grateful if they contact us before logging a formal dispute. Since doing that, our disputes have decreased by at least 40%.”
 

How PayPal can help your dropshipping business?

“From my point of view, PayPal is one of the fastest and easiest ways to start selling,” Mordechai says. “It’s super simple to set up a PayPal account and to integrate it into your store.”

PayPal is also a familiar and trusted payment solution with over 340 million customers across the world.

“PayPal is often at the core of cashflow for a dropshipper’s business,” Mordechai continues, “You receive money from sales in your PayPal account and you use PayPal to pay for the product on markets like AliExpress and for your ads on channels like Facebook. Without that closed loop, you would not be able to scale your dropshipping business quickly enough. I would definitely recommend PayPal for dropshippers.”

Do you already run a dropshipping business? If so, download the new PayPal Online Sellers Best Practice Guide to help make your PayPal experience as efficient as possible.

If you’re just getting started with your dropshipping business, visit our dedicated Dropshipper page to learn more about how PayPal can help you grow your new business.
 

Frequently asked questions.

It's extremely important to report any suspected instances of fraud. Not only will this protect you, it'll also help make the internet a safer place to do business.

Here are some types of fraudulent activity and steps to report them:


Unauthorised activity on your PayPal account

If you notice unauthorised account activity, report it to us immediately through the Resolution Centre. Here's how to report an unauthorised activity:

  1. Go to Resolution Centre.
  2. Click Report a Problem.
  3. Select the transaction ID you want to dispute and click Continue.
  4. Select "I want to report unauthorised activity".
  5. Follow the instructions to report the issue.


Fake PayPal emails or fake websites

If you received what looks like a scam PayPal email, or you've come across a phishing PayPal website, please report it to us by forwarding the original email or URL to spoof@paypal.com. Once you’ve forwarded the email to us, delete it from your inbox and don't click on any links in the email.

Here's more information on how to spot and report suspicious communication, and keep your account safe


Items not received or a potential fraudulent seller

If you sent a payment but haven't received what you paid for, or believe the seller to be fraudulent, you can file a dispute in the Resolution Centre and start communicating the issue with your seller. Here's how to file an item dispute:

  1. Go to Resolution Centre.
  2. Click Dispute a Transaction.
  3. Select the transaction ID you want to dispute and click Continue.
  4. Select "I didn't receive an item I purchased".
  5. Follow the instructions to file the dispute. 
If you can't find an agreement with the seller, you can escalate the dispute to a claim any time within 20 days of the date the dispute was opened. We’ll step in to investigate the case and decide the outcome based on evidence supplied by you and the seller.

For more information about staying safe online and protecting yourself from fradulent events, please visit our Security page.
Since you receive payments for goods or services through PayPal, we're required to submit a tax Form 1099-K to the IRS when the payments you receive meet the reporting thresholds set by the IRS. Recently, the U.S. Internal Revenue Service (IRS) identified a mismatch between your legal name and taxpayer identification number (TIN) in their records. As a result of this mismatch, you received a B-Notice.

Because we complete the required information on the Form 1099-K using the information that you supply to us through your PayPal account, we ask you to take action on your account.

The B-Notice we sent provides the additional information we need from you. You've received either a 1st B-Notice or a 2nd B-Notice.
  • If you received a 1st B-Notice (which happens the first year that the IRS identifies a mismatch in legal name/tax identification number), log in to your PayPal account and click the bell icon (Alert notification) to provide the necessary information. Note that you may be required to download and fill out a tax Form W-9.
  • If you received a 2nd B-Notice (which happens the second consecutive year that the IRS identifies a mismatch in legal name/tax identification number), please provide either a copy of your Social Security Card (individuals or sole proprietors) or a US IRS tax Letter 147C (entities). Log in to your PayPal account, and go to the Resolution Centre to upload the document.
Note: The IRS doesn't have an online solution for requesting a tax Letter 147C; the IRS will mail or fax the letter to you. To contact the IRS for a Letter 147C you should call the IRS's Business and Specialty Tax Line at 1-800-829-4933 between 7am and 7pm, local time, Monday through Friday. Requesting a faxed copy may be the quickest manner to get a copy of the tax Letter 147C. You can visit our PayPal IRS 6050W website for more information (visible only to logged-out viewers).

Please note that the information or relevant tax Form needs to be processed by PayPal before the deadline mentioned on the B-Notice in order to prevent your account from becoming further limited.  

Note:
  • If you've multiple PayPal accounts, you may need to verify that your tax identification number is accurate for each account.
  • Please make sure all pages of the document are included and signed if applicable prior to logging in to your PayPal account and uploading the document. You may also send documents to:
Tax Operations
PayPal
PO Box 45950
Omaha, NE 68145
When a payment is on hold, the money you've received for this transaction is in your PayPal account but temporarily not available for use. Delaying funds availability is a common industry practice we implement to maintain a safer PayPal network for both buyers and sellers. By placing the payments on hold, we want to make sure that there's enough money in your PayPal account to resolve any issues that may arise with your transactions, such as chargebacks or disputes.

We'll email you if a payment you received is on hold. You can also check the payment status anytime on your Activity page.

Here are some common reasons why a payment may be temporarily unavailable:
  • You’re a new seller with PayPal, or you’re an established seller but have opened a new account. It takes time to build up enough history of successful transactions.
  • You haven’t sold in a while. Previously inactive accounts may be subject to payment holds while rebuilding a positive selling history.
  • You receive a large number of reversals, disputes, or chargebacks. We suggest that you communicate with your customers often and work with them to resolve any concerns. If your customer filed a dispute or chargeback because someone illegally used their PayPal account to make the transaction, please hold off on shipping any items.
  • Your selling pattern has changed. For example, the sales volume increases abnormally, or there’s a change in your average selling price, business platform, or type of item being sold.
  • The transaction involves higher-risk items, including tickets, gift cards, consumer electronics, computers, and travel packages.
When can I access the payment that's on hold?
If there aren’t any issues with your transaction or account, the payment will typically be available to you within 21 days after receipt (the money may not be released until later in the day). You may also get your payment sooner if you fulfil the order faster and update the order status in the transaction details. If a dispute or claim has been filed on the payment, the money will be held until the case is resolved.

Note: Payment holds on eBay sales are different from regular PayPal payment holds. You can learn more about eBay payment holds and contact eBay for assistance.

For more details regarding different types of payment hold, please view our User Agreement.
You may have entered into a Billing Agreement with PayPal allowing this merchant to deduct funds from your PayPal account.
 
To see which Billing Agreements are in effect for your PayPal account:
  1. Go to Account Settings.
  2. Click Money, banks and cards under "Business Profile" on the left of the page.
  3. Click Set Automatic Payments beside "Automatic payments".
Note: If you didn't enter into an agreement and believe this is an unauthorised activity, please report it in the Resolution Centre.
The contents of this site are provided for informational purposes only. The information in this article does not constitute legal, financial, IT, business or investment advice of any kind and is not a substitute for any professional advice. You should always obtain independent, professional accounting, financial, IT and legal advice before making any business decision.