Hack 67 Protect Yourself While Accepting Payments

Reduce your odds of getting burned by setting firm policies about the types of payments you accept.

Just as bidders must be cautious when sending money, as described in [Hack #29], sellers must be careful about the payments they receive. A little common sense is all that's required to avoid fraudulent payments, payments that can be reversed, and payments that require excessive fees to process.

Fortunately, it's the seller who sets the rules, at least when it comes to payment terms. Before you start selling, and especially before you send payment instructions to your customers, you'll need to develop a strict policy regarding the types of payments you'll accept.

• PayPal. PayPal goes further than just about any other payment service to protect its sellers from fraudulent payments (such as those made with a stolen credit card). But in order to qualify for PayPal's Seller Protection Policy, you'll need to do each and every one of the following:

  • Have a Premier or Business account, not a Personal account, as described in [Hack #29].

  • Verify your account, which involves nothing more than linking an ordinary bank account with your PayPal account and "confirming" it by having PayPal make two small deposits into it (which you get to keep).

  • Ship only to a customer's confirmed street address, as described in Shipping to Confirmed Addresses. You can see whether or not a buyer used a confirmed address in the transaction details, found at www.paypal.com and in the payment notification email.

    Shipping to Confirmed Addresses Probably the stickiest of all the requirements of PayPal's Seller Protection Policy involves confirmed addresses. The problem is one of diplomacy more than anything else. Many PayPal members don't have confirmed addresses, don't know how to confirm their addresses, and don't know why they need to. What makes it worse is that PayPal doesn't do an adequate job of explaining confirmed addresses to their members, so it's often left to sellers to educate their customers. First, make sure to note in your auction description and your payment-instructions email that you accept PayPal payments only with confirmed addresses (if that's indeed what you decide to do). If you then encounter a buyer who is confused about confirmed addresses, you can explain the procedure (below) or simply instruct him to go to paypal.com, click Help, and search for "confirm address." There are two ways to confirm one's street address at PayPal: Add a credit card to the PayPal account. The credit card billing address is then added as a confirmed address. This takes about a minute. or: If the buyer can't (or won't) link a credit card to his PayPal account, he can still use PayPal's Alternative Address Confirmation as long as he has a "verified" PayPal account, has been a PayPal member for more than 90 days, and has a "Buyer Reputation Number" of more than 10. The buyer then sends a fax to PayPal, at which point PayPal sends a confirmation code to the street address the member is trying to confirm. This process takes about a week. Probably the biggest hurdle is that only PayPal members in the United States can confirm their addresses, which means that you aren't protected by PayPal's Seller Protection Policy if you ship to a PayPal member in any other country. See [Hack #69] for details. You can configure PayPal to automatically block all incoming payments that don't have confirmed addresses by going to My Account Profile Payment Receiving Preferences. Although this seems like a drastic step, it will eliminate the need to repeatedly refund payments from bidders who can't follow directions.

  • Always ship with a tracking number, as described in [Hack #68], and do so promptly. Make sure to keep records of all tracking numbers for a minimum of six months.

  Assuming you're diligent about these rules and you respond quickly if one of your charges is disputed, you'll never be held responsible for buyer fraud. If a specific transaction doesn't qualify for PayPal's Seller Protection Policy, PayPal will pull the money out of your checking account or freeze your PayPal account until the matter is resolved.

  Every time I've encountered a seller who refuses to accept PayPal, it's because he or she never bothered to read the fine print of the Seller Protection Policy and as a result was burned by at least one fraudulent transaction.

• Personal and business checks. If you're smart, you'll never accept a check as payment for an auction. Checks can bounce, buyers can stop payment, and most sellers have no way of determining if a check is even valid. If you must accept checks, ship only after the check has cleared (which usually takes about two weeks). If you want to accept payments only via postal mail, you're better off restricting such payments to money orders and cashier's checks.

• Money orders, cashier's checks, and BidPay. Money orders and cashier's checks aren't like personal checks; they don't bounce and they can't be as easily stopped, so in that regard they're more like cash. There's still the possibility of fraud, however, so if you want to be on the safe side, always have a bank teller inspect the money order or cashier's check. BidPay is an exception to this, since sellers can check the validity of payments they receive by going to www.bidpay.com.

• Credit cards. If you accept credit cards directly through a merchant account, as described in [Hack #75], you will always run the risk of chargebacks. Most credit card companies regard this as the cost of doing business, and will gladly pass that cost on to you.

  If someone pays you with a stolen credit card, or if the customer simply forgets that they've bought something from you, the charge can be disputed through the cardholder's credit card company, as described in [Hack #32]. The company that issues your merchant account will then notify you of the chargeback, and will assess a nonrefundable chargeback fee to your account in addition to the amount of the original charge.

  You can reduce the likelihood of chargebacks by setting the following policies:

  • Ship only to the cardholder's billing address. When processing the charge, verify that the address the bidder provided matches the one on file with his or her credit card company.

  • Always ship with a tracking number, as described in [Hack #68], and ship promptly. Keep records of all tracking numbers for a minimum of six months.

  • Require that your customers provide the CVV code, the three-digit number (four digits for American Express) that appears after the card number, typically on the back of the card. This extra bit of information will help insure that the customer actually has the card in his or her possession, especially in the event of a chargeback.

  • Be extremely careful when accepting payments from buyers in other countries. Not only is the risk of fraud increased, but your ability to defend yourself against chargebacks will be compromised.

  • Consider accepting credit card payments only from bidders with a certain minimum feedback rating, say 20 or 50. Make that requirement higher for international credit card payments.

• International payments. See [Hack #69] for ways to protect yourself when receiving payments from other countries.