PayPal Chargebacks: A Guide to Protecting Your Business

Nicholas Robbins | Monday, May 13th, 2024 | 12 minutes

PayPal chargebacks happen whenever a customer disputes a debit or credit card charge made through a PayPal account with the issuing bank. This differs from a dispute case filed with PayPal directly through its resolution center. Chargebacks filed in this manner can quickly affect your company’s bottom line as sales are reversed, fees pile up, and time expenses begin to mount.

Understanding these chargebacks and how to prevent or overcome them protects your income. Effectively addressing them helps you maintain strong relationships with both PayPal and your customers. This guide will cover everything you need to know about preventing chargebacks.

Common causes of PayPal chargebacks

Malicious or criminal fraud can drive some PayPal chargebacks. In those cases, there’s little recourse for sellers seeking to fight the chargeback. Prevention is the best and often only route. It’s also possible customers simply forget purchases. Misunderstandings can lead to disputes and chargebacks filed with the issuing bank. PayPal notes that its chargebacks typically fall into one of three categories.

  1. Item not received: This category indicates the customer claims to have never received the item, despite payment processing through PayPal. Order delays and misplacement can happen, and it falls on your business to prove delivery took place.
  2. Significantly not as described (SNAD): The customer claims they received the item, but it isn’t what they thought they were getting. Complaints about item quality fall under this category, as do size discrepancies, off colors, and completely different items.
  3. Unauthorized transaction: A customer dispute involving this category may indicate criminal fraud. But a forgetful moment or a misunderstanding can lead to friendly fraud. While losses from malicious fraud fall on you as the merchant, you can still fight other claims of unauthorized transactions and win.

Friendly fraud is anything but friendly. A report in 2020 by FIS Global indicated up to 70% of all credit-card fraud fell into this category. The report notes that friendly fraud, also called first-party fraud, costs businesses over $100 billion annually. Check out our guide on friendly vs. malicious fraud.

PayPal’s dispute process

In a PayPal chargeback, a customer disputes a payment made through their PayPal account. The customer starts the chargeback process when they dispute a charge with their issuing bank. When customers dispute charges from PayPal, their bank notifies PayPal and requests a response. Here, PayPal represents your business and follows a three-step process.


PayPal notifies your team that a customer initiated a chargeback and holds the customer’s payment. PayPal strives to notify merchants of chargebacks, at minimum, within 30 days.


PayPal asks you to provide evidence to help answer the chargeback. This evidence might include proof of shipment or delivery, a transaction receipt, or direct communications with the customer. Stronger compelling evidence helps more easily overturn the dispute.


PayPal submits the evidence you provide to the customer’s bank for a decision. Chargeback decisions can take days or weeks to process. Depending on the outcome, the funds are either released to your company or refunded to the customer.

PayPal chargeback time limit

PayPal buyers can initiate a dispute up to 180 days following a purchase, making it imperative for your company to hold onto information about every transaction for at least that duration.

You have only 10 days to respond to the PayPal notification. During that time, your company must compile and submit all available compelling evidence to try to overturn the chargeback. Late or incomplete responses are not accepted.

PayPal chargeback fee

PayPal charges a flat fee of $20 for every dispute filed against your business for transactions in USD, even if your response subsequently overturns the chargeback. The amount of the fee varies by the currency used, and PayPal maintains an updated list of fees on its website.

This fee can erode your profits from the sale entirely, and the penalties can add up over time. Also, the long turnaround time while chargebacks remain in dispute takes even more from your operating capital. Funds remain held up until the dispute is resolved.

Preventing PayPal chargebacks

The best way to protect your revenue from getting tied up in this process is to prevent chargebacks before they happen. Here’s a few effective steps you can take to get the best return on investment (ROI) for your prevention efforts.

  1. Educate customers: Provide clear contact information and return policies. Ensure your team can quickly respond to inquiries to help customers identify and learn more about their transactions.
  2. Use clear photos and descriptions: Use detailed descriptions and photos in different lighting to help customers feel secure in their purchases. Disclose any damage or flaws. Note how lighting or backgrounds could affect perception of color and size.
  3. Require verification measures: Implement checks with the Address Verification System (AVS) and Card Verification Values (CVV). Tools like geolocation and card security codes help protect all card-not-present (CNP) transactions.
  4. Confirm all orders before shipment: Give customers one last chance to modify orders or ask questions before you commit to the expense of logistics. Confirmation helps catch unauthorized or accidental purchases.
  5. Keep delivery dates realistic: Add 24 to 48 hours for handling expensive or otherwise high-risk transactions. Always use reliable shippers who offer package tracking, and consider insurance or signature delivery for larger purchases.
  6. Deploy advanced fraud detection tools: Evaluate transactions with advanced tools to stop fraud before cards process. Advanced tools simplify protection with effective rules that flag and prevent suspicious purchases.
  7. Adjust protection over time: Learn from each contact. Attempted chargebacks offer an opportunity to refine rules-based filters. Make changes as trends emerge to reduce friction with customers while protecting your company’s revenue.

Fighting PayPal chargebacks

You have the opportunity to fight chargebacks received from PayPal. Unwarranted or illegitimate chargebacks can easily eat into your bottom line. You must choose which chargebacks to fight and determine how best to allocate your resources. A comprehensive response that includes all relevant information helps PayPal and issuing banks overturn the chargeback. They can then release any held funds back to your merchant account.


Determine whether or not to fight the chargeback.

When you receive a chargeback notification, your business must determine if it’s worth fighting. Check to see if the dispute is valid and matches the reason provided. Challenging otherwise valid chargebacks takes time and resources away from cases you can win. Here’s some reasons you might accept the chargeback.

  • Malicious fraud: Criminal and malicious fraud can only be prevented. PayPal and the card networks will not release or return funds to your business in these cases.
  • Billing or merchant errors: Chargebacks due to billing errors, such as multiple charges for a single purchase, are legitimate.
  • Minor purchases: Consider if the dispute is worth the cost in time and labor, factoring in all fees. It may still be worth pursuing if the buyer has shown a history of illegitimate chargebacks. You can also ban such buyers and sellers from your stores.


Craft your response.

Compile the information needed to support overturning the chargeback. Compelling evidence is required. PayPal expects reason-specific evidence for the most common chargeback types.

  • Gather all transaction evidence for every dispute.
    Every piece of information you provide could swing the case. Include receipts, transaction times, proof of delivery, and details from Seller Protection or other advanced tracking tools. Digital and service purchases require proof of download along with copies of any service agreements or cancellation policies.
  • Confirm and include reason-specific evidence.
    Significantly not as described (SNAD) chargebacks - include photos and descriptions as well as any proof of specific customization or requests made prior to purchase.
    Unauthorized transaction chargebacks - provide device IDs, geolocation data, and proof of previous purchases that were authorized or accepted.
    Items not shipped - show proof of shipping and delivery. Include any notes or feedback from the delivery service as well as all tracking IDs.
  • Include customer contacts.
    Provide information on any attempts the customer made to reach out to your business, or make a note that no attempt was made prior to the chargeback.
  • Note any refunds or replacements.
    Provide the details of these transactions in your response. Include the same details as with the original transaction to further bolster your case.


Submit your response.

File your compiled response in the Response Required tab of the PayPal resolution center. Double-check to ensure you’ve included all relevant information. Once your response is filed, it may take up to 75 days for a resolution. Resolved cases appear in the same resolution center dashboard.

  • Remember the 10 day response time limit following notification. PayPal will not review late responses and will consider the chargeback accepted in such cases.

PayPal’s optional chargeback protection

PayPal’s basic Seller Protection doesn’t extend to chargeback protection. If your business uses Advanced Credit and Debit Card (ACDC) checkout, you can apply for a form of chargeback insurance that simplifies the chargeback process.

This chargeback protection reviews transactions made through the checkout service for fraud. PayPal returns the $20 or equivalent fee and releases holds on funds if the customer later decides to file a chargeback.

You’re responsible for providing valid proof of shipment or delivery. The protection does impose a fee on each transaction, regardless of whether or not the customer ever files a dispute or chargeback.

Limitations on this coverage include:

  • Using Advanced Credit and Debit Card processing
  • Additional stringent requirements for intangible goods
  • Coverage only for chargebacks categorized as “Item not received” or “Unauthorized transaction”

Optional chargeback protection can be one part of a complete chargeback management strategy, but the limitations keep it from covering as much as a comprehensive solution.

Managing PayPal chargebacks with Kount

Crafting comprehensive solutions to manage chargebacks and keep revenue flowing in the right direction is what we do. Kount has the tools and technology to help protect your business with a customized strategy . Here’s a few of the ways we can help.

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Automate the chargeback management process

Kount automation saves time and resources. Simplify much of the back-end work to maximize return on investment.

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Integrate evidence collection and submission

Bring everything together on one platform — making chargeback management easier.

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Improve win rates

Quick, complete, and accurate responses help improve win rates. Keep more of your hard-earned revenue where it belongs.

Protect revenue

Maximize ROI

Using Kount can significantly decrease the frequency of chargebacks, reduce manual review costs, and improve operational efficiency.

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Get top-tier support

Our fraud experts have advice for rules and integration to ensure you’re getting the most out of your prevention solutions.

If you’re looking to create a comprehensive chargeback risk management strategy that works, we can help. Kount simplifies preventing and fighting chargebacks of all kinds. Our intelligent chargeback technology delivers top-tier protection with seamless integration. Schedule a demo to see how we can protect your company against costly, unwarranted PayPal chargebacks. We’ll keep you in the loop every step of the way with second-to-none service that meets your needs on your schedule.

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Nicholas Robbins

Content Writer

Nicholas Robbins has over 15 years of content creation expertise. A self-acknowledged high-tech redneck, Nic's passions include reading, investment, and guiding others along the path to financial security.