PayPal reserves, holds : policy changes explained

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paypal logoWe’ve heard from a number of sellers recently that PayPal seem to be stepping up the number of rolling reserves and 21 day holds they’re putting on accounts at the moment. There’s been some conflicting information going about – not least from PayPal support staff – so we asked PayPal to clarify exactly what’s going on. Here’s what they told us.

(If you’re unclear about the difference between holds and reserves, then this post has more details.)

Firstly, PayPal will never place reserves on every seller’s account. Some support staff seem to have made comments like “it’s not just you, it’s everybody”. Obviously that gives the impression that reserves are coming to all accounts, but PayPal have categorically denied it. Just because their T&Cs allow for hold on any account does not mean that holds will be applied to every account: they will not.

Reserves are for “the accounts that seem to be statistically the most dangerous”
There are a number of criteria which influence whether a reserve will be applied to your account. These include (but are not limited to):

  • how long you’ve been in business,
  • number of disputes/claims raised against you,
  • negative feedback,
  • high priced items,
  • risky categories (mobile phones and tickets were mentioned specifically),
  • sudden changes in selling activity such as a shift in prices or inventory.

The majority of reserves will be 10% or less, though there is no stated maximum and PayPal have confirmed that holds of 40% are possible.

21-day holds may now be applied to off-eBay transactions. Yes, you may get holds on website transactions as well as eBay ones. The release for these holds will be the same as eBay: proof of delivery or 21 days without a complaint (positive feedback won’t, obviously, be applicable to off-eBay transactions).

Account-based holds rather than transaction-based holds. Rather than looking at individual transactions, PayPal will now be looking at sellers’ overall activity. In other words, they’re looking at you, not your buyers:

good sellers who had one strange looking transaction will no longer see a hold, but sellers who have a bad run of disputes or negative feedback might start seeing holds placed on their account until things calm down.

Previously, sellers with more than 100 feedbacks, who had been registered for longer than 6 months and who had buyer dissatisfaction rates of less than 5% had been told they would never suffer a hold: now it seems that may not be so cut and dried, as a run of bad feedback or complaints could get a hold slapped on your account.

Indeed, not even eBay’s biggest sellers are immune now: White Elephant Media, one of’s biggest media stores with a feedback score of 327,000, has recently closed down operations, due, they say, to being asked by PayPal to hold over half a million dollars in reserve:

Our PayPal/eBay account was closed November 18, 2009, after selling successfully on eBay for almost 6 years. Several weeks ago, we were asked by PayPal to give them a “deposit” so we could keep accepting PayPal payments. … At first PayPal asked for us to pay $212k into this deposit account. They expected it to be funded in about 3 months. On November 13th, … PayPal increased the amount they needed in our “deposit” account to $600k. … They closed our account after we indicated it would be impossible to come up with $600,000 in about 6 weeks during the holidays. Why they wanted more than a half a million dollars and when it would be repaid if ever was exceptionally nebulous and never explained to us. 48 hours after we were locked out of our account, there was well over $230k in the account. That is the money we use to pay for our merchandise and postage. We were denied access to it and therefore we are unable to operate.

If it could happen to White Elephant, it could happen to you.

So what can sellers do about it?

cash flow : picture of a tap with coins coming out of it instead of waterFirstly, bear in mind that it could happen. Many of the sellers I’ve talked to about this have said that their biggest problem was lack of warning. Some weren’t even aware that PayPal *could* put this kind of hold on their account.

Secondly, remember that this is about PayPal’s assessment of the riskiness of your account. Be realistic about that. Some areas *do* have the potential cause more trouble than others (mobile phones and tickets as PayPal said; I’d add software, refurbished electronics and designer clothing to that). If your courier consistently damages goods, or you’re using a less-than-reliable drop-shipper, or your customer service procedures are not keeping up with the level of your business, then you are at risk.

If you want to carry on trading on eBay, dropping PayPal is not an option. But you should (everyone should) consider if and how their business would survive without eBay and/or PayPal. Do you have an alternative? Is it *enough* of an alternative that you could ramp it up to replace eBay if you had to?

And if PayPal put a 10% hold on your turnover, could you trade through that? For those who take their buyers’ payments and use them to pay a drop-shipper, I suspect the answer is no. But – especially after this incredibly difficult year – many more retailers are cutting their cash-flow ever closer, using this week’s takings to buy next week’s stock. This is trimming it far too fine.

Look realistically at your cash flow and consider what would happen to your business if 10% of it were held for 180 days. If you couldn’t survive, then PayPal isn’t your problem – your cash flow is the problem, and you need to reassess it, and build up a cushion to protect you not only against PayPal holds but against any other unexpected thing that might be thrown at you.



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