7 Reasons PayPal Holds Funds +Preventative Steps Sellers Overlook 

As online sellers, we’re forced to deal with a whole slew of problems that other entrepreneurs don’t understand. Some of these problems manifest as small, goblin-like surprises that eat away at our funds and force us to continually rework our strategies. PayPal holds, chargebacks, and other unanticipated financial hurdles can bruise our businesses in the blink of an eye.

Luckily, when we’re in the know and take preventative measures accordingly, we can mitigate these issues. In doing so, our operations become ever smoother as we move into the future and grow our businesses (i.e. we get to keep more of our profits). 

In this post, we’ll cover seven reasons why PayPal holds funds. Then, we’ll explore two simple measures you may have overlooked that can prevent holds on PayPal funds. 

Here’s what’s covered: 

• How Long Does PayPal Hold Money?
• Why Does PayPal Put a Hold on Funds to Begin With?
  • 1. You’re a New Seller on the Platform
  • 2. Your Account is Dormant or Selling Patterns Change
  • 3. Multiple Transactions Receive Refund Requests
  • 4. Your Buyers Dispute Charges or Initiate Chargebacks
  • 5. There is a Technical Error in the Payment Gateway
  • 6. You Offer High-Risk or Prohibited Items
  • 7. You Try to Sell Copyrighted Items (Without Proof of Licensure)
• How to Prevent PayPal From Holding Your Funds
  • i. Set up a System to Enter Tracking Numbers in PayPal Orders
  • ii. Create a Plan for Dispute Resolution
• Wrapping up

Now, let’s get down to brass tacks. 

How Long Does PayPal Hold Money? 

In PayPal, your payments shouldn’t be pending longer than 48 hours, but that doesn’t mean a quick release of funds is guaranteed. 

In the case that a payment is unusual for your selling patterns, PayPal might hold funds for at least 21 days. 

And, when the underwriting team needs more information about a transaction, PayPal might hold funds for at least 30 days. 

In some cases where best practices weren’t followed, PayPal has been known to tie up the funds of legitimate merchants for several months to a year. 

Why Does PayPal Hold Funds to Begin With?

Is it a conspiracy? Does PayPal hold conservatives’ funds? What about liberals’?

While holds can easily provoke a fit of rage for merchants who lose access to their hard-earned payments, they’re not the result of a shady plot from “the man.” 

In fact, the overarching reason for holds is quite simple and, believe it or not, helpful. When you step back and look at the big picture, you’ll realize there are a ton of eCommerce scams and even more regulatory issues (some of which, new sellers aren’t even aware of) that can leave buyers and sellers alike in a world of hurt. 

PayPal is privy to these scenarios, and, as a platform with 325 million active users, has an exceptionally well-trained, undefeated dog in this fight. The company needs to make sure that its platform continues to be trusted by consumers, which provides an enormous benefit to merchants. 

Shoppers trust PayPal so much that people are 54% more likely to buy from a business that accepts PayPal. You wouldn’t want to process payments through a platform that your customers don’t trust — it would diminish your sales conversion rate. 

And, as miserable as it might be in the moment, holds are a necessary growing pain for most online merchants. Here, learn specifically why PayPal might place a hold on your money. 

1. You’re a New Seller on the Platform

The most common reason PayPal holds funds is that you’re a brand-new seller who hasn’t had a chance to establish trust. 

Oftentimes, in the case of new eBay sellers, PayPal holds funds until feedback is left for the transaction or until a set amount of days have passed. After positive feedback is left, you should receive your money within 24 hours. If it’s been longer than this, reach out to PayPal customer service, as there might be a technical error or another issue that still needs to be addressed. 

New sellers on other platforms also face this issue. So, if you are new to selling (or even if your email address or account is new), make sure you have an alternative cash flow plan in place to keep your business running. 

2. Your Account is Dormant or Selling Patterns Change

If your selling patterns appear unusual, or they change drastically, this can trigger a hold of funds. Scenarios that might seem unusual to PayPal include a new or atypical type of item being sold, a new business platform you sell from, an increase in your average transaction amount, or a quick spike in sales. 

It almost seems as if you’re being reprimanded for business growth. But, the goal is not to punish — it’s to protect. New product offers and fast growth, while exciting, can come with a new set of problems, and PayPal knows this. 

So, the payment processing platform may elect to hold onto your money and wait out a reasonable period in which disputes could occur; in the end, this can save you from spending too much of your cash flow in the event that you need to initiate future refunds. 

3. Multiple Transactions Receive Refund Requests

When multiple customers file for refunds, this tells PayPal that something might be off about your business practices. This type of hold can tie directly into the last: when your selling patterns change or a new product is sold, there can be an influx of refund requests in the early interim while you’re working out the kinks.  

As a payment gateway, PayPal will make an executive decision to hold your money when this happens.

This way, when customers request refunds, you have a balance to pay out of. As forced as it may seem, try to think of a hold as an escrow account without any added service fees. 

4. Your Buyers Dispute Charges or Initiate Chargebacks

Disputes and chargebacks can occur when a customer is unhappy with an item they received and you fail to communicate about a problem with their order, or as fraudulent activity on their part. Essentially, a buyer reports something about the transaction to PayPal in hopes of getting their money back. 

Even if the seller is lying, PayPal can and usually does hold funds until the dispute or chargeback is fully investigated.

While this can be super frustrating when it occurs, bear in mind that customers who initiate chargebacks with your seller account will be blacklisted from doing business with you in the future; this should give you some peace of mind. 

Learn more about dispute resolution below. 

5. There is a Technical Error in the Payment Gateway 

Sometimes payment holds happen when your payment gateway is simply not set up properly. Other times, payments get stuck due to a connection error between platforms.  

Unfortunately, in this case, PayPal’s knowledge base is geared primarily toward consumers. From a bird’s eye view, this is completely understandable. But, when you’re up close and personal, it’s a pain in the ass. 

We already mentioned a couple of common errors that occur with Shopify stores and can cause pending payment issues in our last post (take a peek if you want to learn more).

Now, depending on your setup, the problem could lie almost anywhere. So, in most cases, if there’s a technical error, you’ll need to reach out for assistance from PayPal support to troubleshoot the issue. 

6. You Offer High-Risk or Prohibited Items

PayPal will hold funds when you sell prohibited items, which is probably obvious.

Prohibited items include narcotics, steroids, drug paraphernalia, stolen goods, and items that appear “obscene,” among others. For an inclusive list of items that the platform won’t process transactions for, see PayPal’s acceptable use policy. 

High-risk items, according to PayPal’s policies, include tickets, gift cards, consumer electronics, computers, and travel packages (Sounds harmless, right?). Unfortunately, if you elect to sell these items, you can face unexpected holds. 

So, how do you fix a hold on PayPal for the sale of a high-risk or prohibited item? 

If an item is considered high-risk, you may still be able to sell it, but with limitations on the time in which funds are released. For prohibited items, the answer is to choose a new payment gateway.

→ I’ve heard good feedback from merchants using both National Processing and Easy Pay Direct.

7. You Try to Sell Copyrighted Items (Without Proof of Licensure)

The sale of “items that infringe or violate any copyright, trademark, right of publicity or privacy or any other proprietary right under the laws of any jurisdiction” are expressly prohibited by PayPal. If you are in violation of a trademark or copyright law, PayPal will restrict transactions from your account. 

The solution is to cease operations and find something else to sell, unless, of course, you are a licensed retailer. In the case that you are licensed to sell copyrighted or trademarked items, simply share proof of licensure. PayPal will release any holds and restrictions with proper documentation. 

In some cases, this can take a little longer than usual funds releases because additional information may need to be verified.  

This is How to Prevent PayPal From Holding Your Funds

If you haven’t had a hold placed on your funds, this section might help you prevent it from ever happening. And, if you have, it might help you learn how to get PayPal to stop holding funds and get your money into the bank quickly. 

Chances are, you haven’t implemented these actions yet.  

i. Set up a System to Enter Tracking Numbers in PayPal Orders

When you’re only selling a few items per week, this action step can be as simple as logging into your PayPal account each time an order is placed and entering tracking numbers as soon as you have them. Unfortunately, this plan is flawed. 

First of all, human error is inevitable. You can simply forget to add a tracking number because you’re about to burn your dinner. A close call with a kitchen fire is enough to send other important items on your to-do list out the window. 

Next, as your operations grow, it becomes more difficult to streamline tasks that take time… like adding tracking numbers. 

So, even if you’re just starting out, it’s important to outline a system for adding tracking numbers. Hiring a VA to complete tedious tasks is one option. 

Here’s how to input each tracking number:

1. Log in to your PayPal account.
2. Click Activity at the top of the page.
3. Select the transaction you’d like to update.
4. Click Get your money.
5. Select Product.
6. Add the tracking information.
7. Click Submit.

Hint: Install Uptrack to automate this process on Shopify stores.

ii. Create a Plan for Dispute Resolution

When customers have access to their tracking numbers to monitor sales, they’re less likely to file a premature dispute. But, tracking numbers don’t entirely eliminate the chances of disputes. 

So, create a plan for resolving disputes when they arise — PayPal recommends that you respond to customers “fast.” 

For example, you may receive a dispute because a customer claims that an item is not as described. If know you aren’t at fault, and the product you sent was as described and in good condition, you should still be ready because you will lose the dispute by default if you fail to reply. 

So, in this case, here are the recommended steps to take: 

1. Request a photo of the product from the customer.
2. When you receive it, compare the photo of the photos and description on your store’s product page. 
3. In the PayPal Dispute Resolution Center, respond to the dispute with all of your evidence, including screenshots of the product page and the customer’s photo. If the customer refuses to send a photo, include a copy of the email you sent in your Resolution Center response. 
4. However, if you are at fault for delivering a defective, damaged, incorrect, or otherwise not as described product, you should immediately contact the user and offer an exchange or refund to resolve the issue.

Find other dispute response ideas in our PayPal dispute resolution templates. 

If disputes happen regularly on your Shopify store, you can make the process even easier, by installing an app like Chargeflow. A dispute resolution app can help you streamline the entire resolution process. They can even offer dispute alerts in your seller dashboard to help you resolve conflicts before they become chargebacks. 

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Quick Answers to Related Questions

Wrapping up

In a nutshell, sometimes PayPal holds funds for online transactions. And, while this can be devastating for merchants who need cash flow to keep their business running, these practices are in place for good reason. 

Now, you should have a better understanding of why PayPal holds occur and what you can do to prevent them. Above all, be sure to include tracking numbers for all of your orders and have a plan in place to reply to disputes and get them resolved quickly. 

Are you having a problem with PayPal chargebacks in Shopify? We can help! Download our free guide & PayPal dispute resolution templates today.