Hack 21 Refund a Payment

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Return payments to your customers without doubling up PayPal's fees.

No one likes to have to return a payment; the fact that keeping money is better for business isn't rocket science. Sometimes, however, refunds are unavoidable: a buyer might need to cancel an order, a seller can run low on inventory, or a purchased item might not work out as planned. Fortunately, PayPal makes refunding payments easy.

PayPal also allows you to make partial refunds. This can be handy when a dispute with your buyer is just about the item's price. If a buyer believes the condition of a used item is not as good as expected, you might offer to refund 20% of the purchase price as compensation. Your buyer will have the option to accept or decline your refund offer.

To refund a payment:

  1. Log in to your PayPal account and click History.

  2. Scroll through or search your account history and find the payment you need to refund, and click the corresponding Details link.

  3. Near the bottom of the Transaction Details page, click the Refund Payment link.

  4. On the Refund Offer page, fill in the amount of the refund you want to make, or leave the default amount to make a full refund. Fill in a note to your buyer if necessary, and then click Submit.

  5. On the Confirm Refund Offer page, check the details of the transaction and click Process Refund when you're done.

The payment will then show up in your account history with the status Refunded.

Why Not Just Make Another Payment?

PayPal lets you make and receive payments, so you might wonder why you would want to bother issuing a refund when you can simply make another payment back to the person who paid you originally.

First, if you refund a payment, the person who originally paid you will see the status of that payment as Refunded rather than Completed. This might prevent the confusion that otherwise might arise if the buyer has to reconcile the original sent payment with a separate received payment.

Second, when you refund a payment, you'll get all the PayPal seller fees back. If you refund a $10 payment, for which 59 cents in fees were incurred, your customer will get a refund of $10 and you'll get a credit to your account for 59 cents. If you were to send a separate payment for that same $10, PayPal would charge each of you the 59 cents in fees.

When working with refunds, keep this in mind:

  • You may offer a refund only for a limited time, usually 60 days. If you need to make a refund after that time, you will need to initiate a new PayPal payment to your buyer.

  • If you offer the buyer a partial refund, she has 10 days to decline it if she wishes. (Full refunds are automatically processed.) As with most eCommerce, good communication with your customer can be especially helpful here; discuss the partial refund with your buyer to make sure she will be satisfied and will not decline it.

  • Be sure you know where the funds are coming from; the Refund Offer page provides information about this. If the money will be transferred from your bank account, be sure there are sufficient funds there to cover the refund.