The PayPal Dispute Process Explained

Updated on June 8, 2017

PayPal Disputes

This is a guide for sellers who have had a PayPal payment held or investigation opened against them. It explains the process and what you need to do to make sure you don't lose money.

When Paypal places a payment on "hold" that you have received for an eBay or other item you have sold, it may be referred to as a Paypal dispute, temporary hold, payment placed, or investigation.

Paypal Disputes

The Paypal dispute process may use the terms

  • Payment Held
  • Placed
  • On Hold
  • Reversal
  • Investigation

When a Payment is Placed on Hold

When a payment received through PayPal is placed on ‘hold', it is unavailable until the dispute/case is resolved or closed or paypal completes a review and makes a decision.

PayPal ‘disputes’ are usually opened by buyers claiming they have not received their items, or that the item was ‘not as described’ or that their account has been used fraudulently. Occasionally a buyer may have just forgotten they purchased an item or didn't recognise the transaction on their bank/card statement, and then contacted their bank who have advised them to dispute it.

The funds are ‘placed’ or ‘held’, which means you cannot access them until the dispute is resolved. If the dispute is resolved in favour of the buyer the funds will be returned to the buyer.

I find the majority of disputes are opened because the buyer has not received their item or that it is lost or delayed in the post, especially with international buyers.

There are always a few people who will open disputes before they even contact the seller with a problem. In this case you need to contact the buyer, just send them a friendly helpful message like 'Hi, I noticed you opened a PayPal dispute, is there a problem I can help you with? You can contact me at or call me on 123 456 789'.

The best thing you can do is talk to the buyer on the phone. You can obtain their phone number from eBay using the 'Find Contact Information' via the eBay help pages or sometimes from the PayPal payment details.

As well as disputes opened by buyers, Paypal now also conducts random investigations into payments, so don’t worry if you receive an email from Paypal saying a payment has been held as part of a random investigation. As the payment is usually fine, the case is closed within a few days and the funds become available again.


The PayPal Dispute Process

Buyers can open a dispute seven days after the item is dispatched. Buyers can file/open a dispute up to 45 days after the payment date. The buyer can escalate the dispute into a claim within 20 days from the date the dispute is opened.

1. The buyer will open a ‘dispute’ and the funds will be 'put on hold’ or ‘placed’, making the funds unavailable. You will be emailed by PayPal to notify you and will be shown open disputes when you are logged into your PayPal account. You may also be asked to provide information such as addresses and tracking, if you have this, submit it on the dispute.

2. You and the buyer may exchange messages on the PayPal website which are visible to Paypal. Usually the buyers are just anxious because they have not received their item. Be friendly and helpful, try to stay calm and professional and avoid threats: they usually backfire and you will be left out of pocket. Usually the item is just delayed or it needs to be collected from their their local postal office/depot. The buyer can close the dispute at any time, so you might be able to get it resolved with just one email or phone call.

3. The buyer or seller can escalate the dispute to a claim. The seller may choose to escalate to a claim if they feel the buyer is being unreasonable and wish Paypal to act as an intermediary. This means Paypal will review the case and decide the outcome. They will either decide in the sellers favour and remove the hold on the funds or decide in the buyers favour and return the funds to the buyer.

If the dispute is not escalated to a claim within 20 days, it will close automatically, making the funds available to the seller.

Unfortunately, unless you can prove with a tracking number that the item was delivered, Paypal will often close the case in the buyers favour and return the funds to them. If you are selling items for $1, few buyers will be prepared to pay $5 for a tracked service, and you will have to send the item without tracking. It is sometimes a bit of a gamble but it is just something you have to consider when running an online business.


How To Avoid Disputes

Post items promptly. Buyers will often open disputes if their item does not arrive quickly. Use a tracked service for high-value items; as a general rule I always use tracking for items worth more than $25.

Be vigilant for fraudulent activity, if buyers request items be sent to a different address or posted quickly, even at extra cost to them, it could be an indication of fraud.

Be cautious of high-value orders from buyers with no or very low eBay feedback.

Check you level of protection from Paypal: it can vary depending on location and account verification.

Always send the item to the buyer's confirmed address given on the payment details on the Paypal website & check the payment to see if you are eligible for seller protection. Be very cautious if a buyer emails you the Paypal payment details, these are often fake. Always log into your PayPal account and check the details yourself.

Always check that the delivery address on eBay is the same as the address on the payment details on the Paypal website. Don't just rely on the name and address on the order on eBay. Changing the delivery address on eBay is one of the most common frauds.

If the purchase is made with a stolen card Paypal may charge you around $15 in addition to the cost of the item.

Poll Time!

Have You Ever Had a Paypal Dispute Opened Against You?

See results

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2014 SpaceShanty


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