PayPal Refund Policy: Step-by-Step Guide
Written by
Rudri Patel
Edited by
Elizabeth Constantineau
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If you’re a small business, you’d like to make it convenient for your customers to pay online using a payment service like PayPal. Running a business means a customer, sometimes, wants a refund and the amount placed back into their PayPal account. As a business owner, it is your responsibility to know the PayPal refund policy.
This guide on PayPal refunds will help you through the process.
What Are the Steps To Request a Refund?
To initiate a refund, you must first log in to your account. Once you log in, it is a pretty simple process. You can move through these prompts:
- Choose the “Activity” tab.
- Underneath “Transactions,” click on “All Transactions.”
- Select “Issue a Refund.”
- Enter the refund amount. Double-check the account.
- Click “Issue Refund.”
Although the steps are easy to follow, the customer may not always receive the refund on the same day. The refund time depends on whether the payment was issued via PayPal, a credit card or checking account associated with PayPal.
How Long Does a Refund Take?
PayPal will immediately process your refund request. By default, the refund will be issued out of your PayPal account. If you do not have the funds to cover the refund, PayPal will use your linked bank account to credit the customer. It may be a good idea to have enough funds in your PayPal account since it may take up to five days to process the refund from your bank account.
The refund is credited to the original payment method the customer used, either a PayPal account, linked checking account, or linked credit or debit card. The refund times can be shorter or longer depending on the payment method.
Here’s how refund times work:
- PayPal balance: Same day
- Credit or debit card: Up to 30 days
- Checking account: Up to five days
What Fees Are Associated With the Refund?
As a business owner, you will not be charged a fee for any voluntary refunds, but you will lose the processing fee for the transaction. If the customer paid you $50 for a service or product, but PayPal charged you a processing fee of $4, you received only $46 for the transaction.
When the refund is authorized, in order to make the transaction whole, the refund will be issued for $50. You will not recoup the $4 for the processing fee.
There can be additional fees if there is a chargeback. A chargeback occurs when the customer decides to dispute a transaction because of a duplicate charge, merchandise that wasn’t received or a fraudulent charge. This request is typically made either to the credit or debit card institution or to the bank where the checking account is housed. As a small business owner, PayPal will charge you a nonrefundable fee of $20 for any transactions not covered by their Seller Protection Program.
What Is the Refund Fee Time Limit?
If the transaction’s status is listed as “Pending,” “Completed” or “Cleared,” the amount is refundable within 180 days of the transaction date.
For transactions that fall out of the 180 days, small businesses will incur an additional fee.
You will have to use the “Send money” button and also incur a fee 2.89% of the total transaction amount + $0.49. For example, for a $50 payment, the charge would be $1.45 plus a flat fee of $0.49 for a total of $1.94.
How Are Partial Refunds Handled?
You can issue either a partial or full refund for PayPal transactions. If the buyer uses a gift card, gift certificate or coupon for the original transaction, PayPal will allow you to issue a full refund only. No partial refunds are allowed on those transactions.
How Does PayPal’s Refund Policy Stack Up Against Competitors?
PayPal’s cost to refund for a small business is higher than its competitors. PayPal also doesn’t refund the chargeback fee even if you prevail. Venmo has a lower cost to businesses for refunds and doesn’t charge a dispute fee. Many of PayPal’s competitors do not have a time limit for refund requests.
Here is a table comparing PayPal and its competitors: Stripe, Square, Venmo and Shopify.
| PayPal | Stripe | Square | Venmo | Shopify | |
|---|---|---|---|---|---|
| Time limit | 180 days | None | One year | None | None |
| Fees returned | None | None | None | None | None |
| Cost to refund a $50 credit card payment | $1.99 (2.99% plus 49 cents) | $1.75 (2.9% plus 30 cents) | $1.75 (2.9% plus 30 cents) | $1.05 (1.9% plus 10 cents) | $1.75 (2.9% plus 30 cents) |
| Chargeback or dispute fee | $20 Nonrefundable |
$15 Nonrefundable |
None | None | $15 Refundable |
Final Take
Issuing refunds through PayPal is a straightforward process for small business owners, but it’s important to stay informed about refund time limits and fees. Handling refunds efficiently can boost customer trust and help maintain a positive reputation for your business.
FAQ
Here are the answers to some of the most frequently asked questions about PayPal's refund policy.- Is there a cost for a small business to issue a refund on PayPal?
- No, PayPal does not charge an additional fee to issue a refund. However, the original transaction fee that PayPal charged when the payment was made will not be refunded to the business.
- Can a refund be canceled once issued?
- Once the refund is issued, it cannot be canceled or reversed. You will need to make other arrangements with the buyer if a refund is issued by mistake.
- Will the buyer be notified of the refund?
- Yes. PayPal will automatically send a notification to the buyer's registered email address once a refund has been processed indicating the amount and status of the refund.
- Does PayPal have a dispute fee?
- Yes. Even if the small business owner prevails, PayPal will charge a $20 fee. This fee is nonrefundable.
- What happens after the refund is issued?
- Once the refund is issued, PayPal will refund the original amount to the customer's account. The amount will be refunded to the customer's original payment method -- PayPal account, checking account or credit card. PayPal will notify the customer and the small business that the refund was credited to the appropriate account.
- How do refunds impact the reputation of a small business?
- Refunds from a small business to a customer that are processed efficiently could enhance the seller's reputation. Delays may negatively impact the reputation of the small business.
Information is accurate as of Oct. 23, 2024.
Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.
