The five ways PayPal can ruin your business

Reginald Ofori
4 minutes

As a merchant, not playing by PayPal’s rules is very much ill-advised. PayPal has plenty of levers it can pull to frustrate your business with a ‘reward’ for non-compliance.

Here are the five main ways PayPal can play hardball with anyone with a PayPal merchant account.

1. Account termination

Firstly, and also the most drastic step PayPal can take, is to simply terminate your merchant account once they decide you are in serious breach of their user agreement. It does not happen often, but once it happens, it becomes very difficult to open a new PayPal merchant account, unless you have another business with other directors who create the PayPal account using their ID. Trying to do so yourself will be futile as you are unlikely to pass the ID verification process.  

2. Payment on hold or unavailable funds

Many PayPal merchants at some point will experience a time when their funds become unavailable. This is known as a payment hold.

A quick overview of situations that can trigger this include: 

  • You’re a first time seller. When you’re a new 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.
  • Long period of inactivity. When your selling activity has been dormant for a long time, it’ll also take time to rebuild a history of positive buyer-seller transactions.
  • Spike in customer disputes. When you experience a significant spike in customer disputes relative to the total number of transactions.
  • Spiky selling patterns. Unusual account activity includes a recent spike in sales or a change in your average selling price, business platform or type of item being sold.
  • You’re selling higher-risk items. Higher-risk items can include tickets, gift cards, consumer electronics, computers and travel packages.

Besides the above two ways in which PayPal can upset a merchant, the platform can also activate any of its three types of account reserve. I explained this [link to blog post ‘The three types of PayPal account reserves explained’] already in detail in this blog post, but to quickly summarise, see the next 3 paragraphs.

3. Rolling reserve

With this type of reserve, PayPal will start to withhold a portion of every payment received, for a period of up to 90 days.

Example: if your account is hit with a 10% rolling reserve and you receive a payment of $100, you will be able to immediately access $90 (90% of the payment) and the remaining $10 is put in reserve and only released to you after 90 days.  

4. Minimum reserve 

PayPal will want to maintain a reserve balance amount in your account. The exact amount will differ based on your historic sales activity, but other than that, the idea is that until the reserved balance amount is reached, every single payment you receive is put in reserve. From that point on, you will be able to access new payments you receive, but all the previous payments will be kept in reserve until the almighty gods at PayPal decide to release it to you.  

5. Jumpstart reserve 

Imagine you have a PayPal balance of $5000. PayPal can decide to lock up $2000 and deduct it from your available funds.

The single most impactful action any merchant can take in order to minimise the chance of experiencing the aforementioned ‘penalties’ is to upload the order tracking information for every single purchase. Because doing this manually is a major time-suck and error-prone, smart merchants opt to sign up for Solpaid to make sure that order tracking information is always automatically uploaded to PayPal.

Not only does it help them become compliant with a key requirement from PayPal, but it also unlocks the opportunity to benefit from PayPal Seller Protection. It should be a no-brainer. Try it out yourself for free with our 14-day trial - no credit card required. 

Sources: PayPal - How to resolve payment on hold or unavailable funds

Reginald Ofori