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.
 

Frequently asked questions.

Both PayPal accounts allow you to send and receive payments.

  • Personal: Recommended for casual users/sellers or non-businesses who wish to get paid online, and who also make online purchases.
  • Business: Recommended for merchants who operate under a company/group name. It offers additional features such as allowing up to 200 employees limited access to your account and customer service email alias for customer issues to be routed for faster follow-ups.

With a Personal account, you can:

  • Have PayPal buttons on your website and accept payment with PayPal for low fees.
  • Receive payment via email for low fees.
  • Make secure payments using your credit card, or bank account in the U.S.

A Business account has all the features of a Personal account but adds many services. With a Business account, you can:

  • Operate under your company or business name.
  • Accept credit card, and bank account payments for a low fee.
  • Manage users, allowing you to give separate access rights to each of your employees.
  • Gain access to PayPal products that meet your business needs, such as Express Checkout.
  • Use PayPal Business Setup to set up your account in a short time.

Fees:
If you want to know more about our transaction fees, go to the fees section of our website.

All US payment processors, including PayPal, are required by the Internal Revenue Service (IRS) to provide information to the IRS about certain customers who receive payments for the sale of goods or services through PayPal. Form 1099-K and B-Notice are tax forms which are applicable to holders of accounts both within and outside the United States since it pertains to income reporting for US persons/entities.

FATCA affects account holders that are outside the United States, and it requires PayPal to collect tax documents or certifications from account holders stating whether they are US persons. This includes, but is not limited to, business entities, and some individuals that open accounts outside the United States.

Tax Form 1099-K Tips:
  • If you feel there is a discrepancy in your tax Form 1099-K, please review your reconciliation report and contact us with the transaction ID(s) in question and the justification for why the transaction is being disputed.
You can also view these additional 1099-K Help Center articles:
B-Notice Tips:
  • If there are any discrepancies with your tax identification number and legal name that was used by PayPal for tax Form 1099-K reporting filing with the IRS, you may receive an IRS B-Notice
  • The B-Notice mailing will provide you with all of the additional information we need from you.
    • If you received a 1st B-Notice (which happens the first year that the IRS identifies a mismatch in tax identification number/legal name), log in to your PayPal account and follow the Alert Notification to provide the requested information. You may need to download and fill out the IRS tax Form W-9 for PayPal to review.
    • If you received a 2nd B-Notice (which happens the second consecutive year that the IRS identifies a mismatch in tax identification number/legal name), you must provide either a copy of your Social Security Card (individuals or sole proprietors) or US IRS tax Letter 147C (entities). Log in to your PayPal account, and go to the Resolution Center to upload the document.
  • The IRS does not have an online solution for requesting a tax Letter 147 C; 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 also view our tax information page for more information.
  • Fully complete and sign the relevant form and upload it by logging into your PayPal account and following the Notification prompt.
  • Why did I receive an IRS B-Notice?

FATCA Tips:
  • Only impactful for account holders outside of the United States.
  • PayPal must collect documentation such as certification of non-US status and either a tax Form W-9 for US persons or entities that are subject to US tax, or a tax Form W8BEN/W8BEN-E for non-US persons or entities that are not subject to US tax withholding and reporting.
  • Most business users who need to provide the requested information will be able to do so by logging into their PayPal account and following the notification prompts.
You can also view these additional FATCA Help Center articles:
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 Center 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
There are several reasons funds may be temporarily unavailable:

1. You’re a new seller with PayPal or you’re an established seller but have opened a new account.
When you’re a new PayPal seller, it takes time to build up enough history to demonstrate a pattern of positive buyer-seller transactions. The good news is you can usually move out of this status by confirming your identity and building up a history of positive selling activity.
If you’re an established PayPal seller, but opened a new account, that account will be eligible for holds until a good history is established.

2. You haven’t sold in a while.
When your selling activity has been dormant for a long time, it will also take time to rebuild a history of positive buyer-seller transactions.

3. Multiple customers filed for a refund, dispute, or chargeback.
If multiple customers file for a refund, dispute, or chargeback, or if you receive a large number of refunds, disputes or chargebacks in a short period of time, it can delay the availability of your funds. The best way to resolve this is to work directly with your customers to prevent, or solve, disputes and chargebacks.
Sometimes it’s possible that your customer filed for a refund, dispute, or chargeback because someone illegally used their PayPal account to buy something. We ask that you hold off on shipping any items when this happens.

4. Your selling pattern appears unusual or has changed.
Unusual sales activity includes: an increase in sales or a change in average selling price, business platform, or type of item being sold.

5. You’re selling higher risk items.
Higher risk items can include tickets, gift cards, consumer electronics, computers, and travel packages.

Tip: after your hold is released, it may take until midnight (but it's usually sooner) for the money to appear in your account.

For more information on payment holds, check Why is my payment on hold and when will it be available?

For more information on eBay holds and how to contact eBay, check Why is my payment from a sale on eBay on hold?
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.