Preselling: what it is and how to mitigate risks.

Jul 12 2018 | Alice Wong, Small business - North Americas, PayPal

You may occasionally find yourself in a position where you need to presell items; in other words, you collect money up front for goods or services that aren’t available yet. When that’s the case, it’s helpful to know some basics to help you accept and process payments smoothly.
How do you know if you’re a preseller?
Preselling is pretty common. Here are a couple of examples:
  • When you sell tickets for an event like an upcoming concert or travel.
  • When you need to use the money collected from buyer(s) to purchase the product from a distributor.
  • When the product is made to order and/or being created, the item might be ordered and paid for upfront and then delivered after it’s completed. This is also known as delayed delivery.
PayPal’s preselling requirements.
If you’d like to presell items in an online store, keep in mind you’ll need to guarantee delivery within 20 days from the date of purchase and also let your customers know they’re buying a presale item.

Withdrawing payment from a presale.
We may ask you for documentation before you can withdraw payments from a presale. The documentation can include:
  • Information about your supplier such as a contract and/or their contact information
  • Proof of purchase from your supplier
  • Invoices
  • Shipping receipts
We ask for information about your supplier and invoices to verify that you have a product or service; and we ask for shipping information to verify that you’ve shipped the orders.

How PayPal helps protect against preselling risks.
PayPal also takes measures to protect you and the buyer in presales. One measure is an account reserve - an amount of money held in your PayPal account for a temporary period of time. It ensures your buyer receives the product or service they paid for within the agreed upon timeline. Learn more on account reserves here.
 
You can check if a reserve was placed on your account by viewing your on hold balance when you log in to your PayPal Business account and clicking on Money. 
 
How to mitigate preselling risks.
Any time money is collected before an item is available, things can go wrong—some of which may be completely out of your control. 
 
As an example, natural disasters can impact the production or delivery of goods. Or, your manufacturer may have internal issues that cause shipment delays. Unfortunately, you could also find yourself dealing with fraud on the part of your supplier or sudden inventory problems may cause a shortage of product. 
 
In the case of ticket sales, events may be cancelled due to unexpected circumstances like serious illness or weather conditions. 
 
Any of these circumstances can impact your ability to supply your buyer with the product or service they purchased. However, there are ways to mitigate your risk. 
 
One way to lower risk for products and services with an extended delivery time is by dividing payments; a down payment to secure the order, and a final payment once you ship the product or deliver the service.
 
For example, if you’re selling a custom piece of furniture, you may initially charge the buyer for the materials needed. After you’re finished with the piece and it’s ready for shipping, you can charge the remaining balance.
 
Here’s how else you can help ensure a safe preselling transaction:
  • Clearly state when an item will be available for shipping in your listing by specifying the correct handling time. The handling time specified in your listing needs to reflect the time from the end of the listing until the item is shipped to the buyer — not when the item is in your possession.
  • Indicate it’s a presale item in the product listing.
  • Make sure people can easily see the sales terms on your website with default font sizes.
  • Clearly list the refund policy on your website. Being upfront will help your buyers accept the terms of an extended delivery, and it can also help you process any refunds smoother.
Presales always carry some level of risk, but following preselling guidelines and taking necessary precautions can help you ensure a successful transaction.
 
You can also access additional information by reviewing our FAQs at the bottom of this page.

 
The contents of this site are provided for informational purposes only. You should always obtain independent, professional accounting, financial, and legal advice before making any business decision.

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Frequently asked questions.

An account reserve is an amount of money that is held in your PayPal account to cover potential risk of payment reversals you may receive, like chargebacks and claims.

Key-in and swipe transactions over certain monetary thresholds may be subject to an automatic reserve. Funds in reserve will be temporarily held in your PayPal account and unavailable to you, to cover the high risk of fraud associated with these transactions. For increased protection from fraud and to reduce the likelihood of funds being held, we recommend using a chip or contactless card reader. All PayPal accounts are subject to policies that can lead to account holds, limitations, or reserves. See the PayPal Here™ Agreement.


Why do you place some PayPal Here funds received via key-in & magnetic stripe in reserve?

Keyed-in and magnetic stripe transactions are associated with higher incidents of fraud compared to chip and contactless transactions. Account reserves allow for a portion of money to be temporarily set aside to cover any payment reversals associated with fraudulent activity you may receive like chargebacks, claims, and disputes.


Will using a chip card reader prevent funds from being placed in reserve?

Processing chip or contactless transactions with the PayPal Chip Card Reader can minimize the likelihood of funds being placed in reserve. There are other factors that determine when funds are held in reserve. Accounts are evaluated on a case-by-case basis and a reserve may be placed on your account if there is a high level of risk associated with your account. For more information on account reserves please visit the PayPal Help Center.

How do I know if my funds are being held in reserve?

You will be notified by email if any funds are held in reserve. Additionally, the amount being held in reserve can be found under ‘on hold’ in the money tab. From time to time, we may need to adjust your reserve amount. If that happens, we’ll email you about the changes.

How can I reduce my reserves?

If you have a PayPal Mobile Card Reader, to reduce the reserve on your account, you may consider upgrading to a more secure device. With an upgraded device, you can accept other transaction types, which are more secure, such as chip card. Alternative devices are available.

   
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