PayPal is one of the most commonly accepted alternative payment methods in e-commerce. Part of that is simply because the platform has been around for a long time, but PayPal also tends to be easier for customers to use and easier for new merchants to set up than traditional payments. Many small businesses start accepting PayPal even before they can accept credit cards.

Unfortunately, no payment method is perfect. Payment disputes are universal in the world of e-commerce, regardless of what payment method the customer used, and PayPal is no exception. PayPal Disputes and Claims follow a different process than typical chargebacks, as they're handled through PayPal's internal systems rather than a credit card network. In order to manage these disputes effectively, merchants should know how PayPay Disputes and Claims work, the difference between the two, and the best ways to avoid them.

PayPal encourages buyers to resolve any issue they have with a purchase through the PayPal Resolution Center, and most will do this, resulting in a PayPal dispute or claim. However, buyers can still dispute the charge through their bank as well, resulting in a chargeback. We've already covered PayPal chargebacks in depth, so let's take a closer look at disputes and claims.

When a buyer opens a PayPal dispute, they're essentially opening a dialogue with the merchant about a serious issue with their purchase. The seller will be given 20 days to resolve the issue with the buyer directly before the dispute can be escalated to a claim.

When the buyer reports that a transaction was unauthorized, a claim will be initiated directly rather than needing to be escalated from an unresolved dispute. Since there's no dispute in these cases, the dispute fee will be waived.

While refunds are the most common solution, any arrangement between the buyer and seller that resolves the problem and convinces the buyer to close their dispute is acceptable. Sellers are free to respond to these issues in other ways, such as sending out a replacement product or offering store credit.

A seller can always acquiesce to the buyer’s demands and give them their money back, but false, fraudulent, and mistaken disputes are inevitable for any merchant who runs an eCommerce business.

When a transaction is disputed, the seller can still interact with the buyer to try to work out a mutually-agreeable resolution. Once the dispute has been escalated to claim status, PayPal becomes more directly involved, reviewing the buyer’s complaint and the seller’s evidence in order to reach a decision.

Here are the key things to understand about the dispute phase, and what actions the seller may take during it:

• Once the buyer has filed a dispute, the seller has 20 days to resolve it.
• If the dispute is resolved, it’s the buyer’s responsibility to mark it as such within PayPal’s system.
• If the buyer is unsatisfied with the seller’s offers to resolve the dispute, they have 20 days to escalate it to a claim.
• Once the dispute has been escalated to a claim, PayPal steps in to review the matter.

The type of evidence sellers need to provide depends on the nature of the claim and the goods or services that were purchased.

• Physical goods: The seller must provide proof of delivery, confirmation that the shipping address and the delivery address match, and for transactions over $750, signature confirmation.
• Digital goods: The seller must provide proof that the product was downloaded or used.
• Digital services: The seller must provide the service agreement that the buyer signed which outlined the deliverables, as well as an acknowledgment agreement stating that all the deliverables were completed and received to the buyer’s satisfaction.
• Service providers: For orders under $200, it is recommended that sellers solicit a service acknowledgment receipt from the buyer that they can provide as evidence if a claim is later made. For larger transactions, the seller should ask the buyer for a signed agreement with a list of deliverables before the work begins, and a service acknowledgment receipt after the service has been rendered.

If the seller has already issued a refund for a transaction that now has a claim filed against it, proof of that refund will resolve the claim.

Remember, while many buyers will attempt to work through disputes through PayPal for the sake of convenience, they still retain their right to file a chargeback with their bank.

Once a PayPal transaction becomes a chargeback, the usual strategies for fighting them come into play, along with the downsides of not fighting them. For that reason, merchants should look at PayPal disputes as a good opportunity to nip a customer issue in the bud before it becomes a much bigger problem.

Our comprehensive guide, A Merchant's Guide to PayPal Chargebacks, can help you effectively handle PayPal disputes, claims and chargebacks in order to protect profits.

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