Using PayPal for Dropshipping: How to Not Get Banned in 2025

This is a topic that many dropshippers will experience: getting banned by PayPal.

Maybe you are even reading this article because it already happened to you?

In that case, don't worry!

In this article, you will find the solution to your problem and read about how you can prevent being banned by PayPal in the future.

Quick Answer: How to handle PayPal holding funds due to dropshipping

Handle PayPal holding funds due to dropshipping by registering your business, uploading valid legal documents, using trackable shipping methods, and maintaining strong customer communication.

Prevent bans by updating tracking info, resolving disputes quickly, and using tools like Chargeflow and AfterShip to automate updates and reduce chargebacks.

Let's go more in-depth now!

Why does PayPal ban dropshipping stores?

Like every other online payment company, PayPal strives to maintain a reputation as the safest and most convenient payment method on the internet.

When PayPal is available as a payment option, people should feel very comfortable using it and shouldn't have to worry that the store from which they are buying a product is fraudulent.

Many dropshippers, however, don't really care about the product they are selling, the delivery time, or their customer communication.

They only think about receiving money.

Customers who are treated in that manner will, of course, have an awful customer experience and initiate a dispute on PayPal.

Many times, the main topic of their dispute is:

• The product did not arrive or is still in transit
• Broken product
• Poor quality product
• No tracking information
• The product is not as described
• No customer communication/no replies on contact attempts

No wonder PayPal often bans dropshipping stores that treat their customers in this manner!

What makes it even worse is that, on average, dropshipping stores are more likely to be guilty of the above topics than other ecommerce stores.

Because they dislike disputes, PayPal is particularly cautious with dropshipping stores.

Do you need more information on how to treat your customers? We have created a comprehensive guide on customer service for dropshipping stores here.

Add Do Dropshipping as a preferred source on Google to see more of our trusted dropshipping guides when you search.

Setting up a PayPal business or personal account?

If you are still setting up your PayPal account, you will have to choose between a business and a personal account.

Some people aren't sure which one to choose, but let me tell you, always choose a business account!

Not only is choosing a business account required by PayPal if you are planning to sell online frequently, but it will also decrease your chances of being banned by PayPal when dropshipping.

With a business account, you can submit your business's legal documents to PayPal, which shows them that you're a serious seller.

Additionally, they will expect you to have more transactions and potentially more disputes than a personal account.

If you're interested in learning how to set up your PayPal business account, I suggest visiting this article from PayPal. They also included an easy-to-follow video there.

And if you're interested in learning more about the legal side of dropshipping, then check out these six tips to avoid getting sued when dropshipping.

Now that you have set up your account correctly, let's discuss some methods to prevent being banned by PayPal!

The 4 things you should be doing to prevent getting banned by PayPal

To help the entire dropship community, I have written this article, which includes everything you should do to prevent being banned by PayPal if you are dropshipping.

Hopefully, you will be able to apply these tactics and never get banned by PayPal when dropshipping again.

Let's start!

Set up a real company and provide legitimate documentation

In most cases, when you set up your PayPal account for the first time, you will only need your business name and address, and you're ready to go.

But what happens if you suddenly make lots of sales or, even worse, receive a dispute?

PayPal will then request additional documentation regarding your business, such as proof of registration or proof of address.

Since anyone can start dropshipping without submitting their legal business documents, most people won't be able to provide these when PayPal requests them.

Related article: Is Dropshipping Legal in 2025? (Take a Look Here First)

Other people may even attempt to submit fake documentation.

Guess what happens next…

Their PayPal account will be banned, and their funds will be withheld for up to 180 days.

Thus, the first step to prevent getting banned from PayPal when dropshipping is to set up your business in the country you're from!

This way, you will be able to provide all the legal documentation that PayPal requests.

You can learn more about setting up your business in this article. That article will also cover what to do with taxes when you're dropshipping.

Another great tip is to create a professional email address instead of using Gmail or Outlook. If you don't have one yet, then you can click here to learn how to set one up for free.

Provide real tracking numbers for your order

You now have your legal documentation sorted and can start making sales!

When selecting a shipping method for your products, I highly recommend choosing one that includes Track-and-Trace and therefore provides a tracking number:

In PayPal, you can then add each tracking number to its corresponding order. 

This will help you prevent getting banned by PayPal in the following ways:

• Provide proof of shipment: With a tracking number, you essentially give PayPal proof that you have shipped out the package for your customer. Therefore, PayPal will recognize that you are attempting to establish a legitimate business and fulfill your orders to customers.
• Reassure your customers: Having access to a tracking number is a great relief for your customers. Imagine waiting 2 to 3 weeks for your package without knowing where it is in the shipping process or if it will even arrive at your house.
  
  Customers with access to a tracking number can check the status of their order daily. They often won't contact you anymore about the status of their order, and won't open disputes on PayPal about not receiving their package.
• Insanely helpful for winning disputes: When you have a high-quality product, chances are that most of your disputes will be about customers claiming they did not receive their package. PayPal will only ask you to respond to your customers' disputes with a message.
  
  However, you can actually insert the corresponding tracking number into the dispute by clicking “Add tracking number”. This way, PayPal can see that the package is still in transit, and you will always win the dispute if the package gets delivered a few days later!

To summarize, a tracking number provides PayPal with proof of shipment, reduces disputes by reassuring customers, and is extremely helpful in winning disputes.

PayPal tracking number apps

To minimize the risk of being banned by PayPal when dropshipping, it is recommended that you upload tracking numbers to PayPal for all your orders.

If you receive numerous orders daily, this can be very time-consuming.

To automate this process, you can install so-called PayPal auto-upload tracking apps.

These services automatically upload your tracking numbers to PayPal for the corresponding orders, eliminating the need for manual updates!

I do advise you to be careful with these apps, though. These are third-party apps, which means they are not on the official Shopify app store.

Additionally, some apps may hire individuals from Fiverr to manually upload tracking numbers into your PayPal account, which means a stranger will have access to your PayPal account.

If you do want to use an app like this, the most popular ones are UpTrack and Simple Seller Protection.

These apps utilize the Shopify and PayPal secure API environment, which allows them to automatically source the tracking code from Shopify and upload it to PayPal.

Keep in close contact with your customers

One of the main advantages of dropshipping is that you don't need to keep your own inventory. However, this comes with a price if you're dropshipping from China: long delivery times. 

It's your job to set realistic expectations for your customer and update them on every step of the shipping process.

Often, customers are willing to wait 2-3 weeks for their order, as long as they receive timely updates.

With an app like Aftership, you can design your own branded tracking page and send your customers delivery updates.

If you're unsure about the delivery updates you should send to your customers, here is a template for you. The most important delivery updates will be in bold:

• Day 0: Send an order confirmation email. This will include a summary of their purchase, their receipt, and an overview of events they can expect later.
• Day 1: Packaging confirmation mail. Tell your customer that their order has been processed and that you're currently working on packaging their order.
• Day 2: Order packed mail. The customers' order is packaged and ready to leave the warehouse!
• Day 3: Shipping confirmation mail. This is one of the most important emails to send. It will include their tracking number with a link to your tracking page, which they will be able to reference, and an expected overview of the shipping process. 
• Day 7: Package left the country of origin email. Here, you will tell your customer that their package has cleared customs in its country of origin and is on its way to the destination country (ideally by plane).
• Day 10: Arrival in the destination country. Inform your customer that their package has now arrived in their country. It will still need to pass customs and will be delivered by the last-mile courier afterward.
• Day 14: Out for delivery by last-mile courier. Ideally, you will want to send this email 1 day before the package gets delivered. Tell your customer that their package has almost reached them and is scheduled to be delivered tomorrow!
• Day 15: Delivery confirmation mail. Send a confirmation of the package delivery with a title like: “Your package has been delivered!”.

By utilizing this template and maintaining contact with your customers, you can significantly reduce your chances of encountering a dispute, thereby decreasing the likelihood of being banned by PayPal.

Here's an example of how an email sequence looks on Aftership:

Respond to disputes correctly

By utilizing the three strategies above, you will already have a significantly lower chance of encountering disputes and being banned by PayPal.

With this final strategy, I would like to discuss the steps you should take when you do eventually encounter a dispute:

What is a dispute?

If you don't know already, a dispute is a process facilitated by PayPal in which a customer can open a dialogue with you about a complaint they have about your service or product.

Within PayPal, a dispute can be opened for one of the following two reasons: 

1. Item Not Received (INR): Here, the buyer claims that they have not yet received their order.
2. Significantly Not As Described (SNAD): Here, the buyer claims that the item they received is significantly different from what was expected based on the seller's (your) pictures/description.

Assuming your product is of good quality and you have an excellent product page, the most common disputes you will encounter will be of the 'Item Not Received' type.

Additionally, the fact that you're dropshipping and often have longer delivery times increases the likelihood of receiving an INR dispute.

How to respond to and win disputes?

To prevent your funds from being withheld, losing money, and being banned from PayPal, resolving the disputes you receive is crucial.

The first thing to remember is to resolve the dispute as quickly as possible.

This shows PayPal that you're a serious seller who knows the importance of a happy customer.

If you get an INR dispute, follow these steps to resolve it:

The most important thing is to submit the tracking number to PayPal if you haven't done it already.

You can do this by clicking on the dispute, and then you will see a button “Add Tracking Info” at the bottom of the page.

By clicking this button, you can paste the corresponding tracking number, select the shipping company you use, and add a message:

You are also required to respond to your customers' disputes with a message.

To make your life a bit easier, here is a template you can use to indicate that the package is still in transit or already delivered:

Dear Sir/Madam,

Order #[ORDER NUMBER] placed on [STORE NAME] on [ORDER DATE] is currently [IN TRANSIT/DELIVERED].

We have shipped out your order to the following address: [SHIPPING ADDRESS]

The order was shipped out on [SHIPPING DATE].

We expect the order to be delivered on [EXPECTED DELIVERY DATE]/The order was delivered on [DELIVERY DATE].

These dates fall within our shipping policy, which can be viewed here: [SHIPPING POLICY URL]

The order was shipped with [CARRIER] and has the tracking number: [TRACKING NUMBER]

The package can be track-and-traced using the following URL: [TRACKING PAGE URL]

We hope to have provided all relevant information and that the dispute can be settled.

If you have any further questions, you can contact us at [SUPPORT EMAIL].

Kind regards,

[NAME] from [COMPANY NAME]

That's it! Hopefully, you will win the dispute and get your money back!

If you receive a “Significantly Not As Described” dispute, it's important to listen to your customer.

Try to understand why your customer is unhappy with the product and work together to find a solution.

Additionally, although this manual approach is effective, it can be time-consuming, particularly when dealing with multiple disputes.

This is where Chargeflow comes in handy:

Chargeflow is an automated solution that manages and fights chargebacks for you, utilizing AI and millions of data points to maximize your chargeback dispute win rate.

The best part is that with Chargeflow, you only pay when they successfully recover chargebacks in your favor!

By using a tool like Chargeflow, you can focus more on your business while ensuring that your disputes are handled professionally and efficiently.

Lastly, if you don't have a Shipping Policy yet or if you're not sure what it means, then check out this article:

How to Create a Dropshipping Shipping Policy? (+ Template)

Conclusion

Many people think PayPal only wants to ban dropshipping stores; however, it's perfectly possible to have a successful dropshipping store and never be banned by PayPal!

The most important thing to have is excellent customer service and a product of good quality. 

Ensure that your shipping method is reliable and includes a tracking number, allowing customers to track their orders at any time.

Additionally, set up a mail sequence to keep your customers updated on the shipment status.

All this will lower the chance of getting a dispute and therefore getting banned by PayPal when dropshipping.

After reading this article, I hope you will be able to apply these methods and avoid being banned by PayPal again.

If you experience any other problems with PayPal, such as account limitations, or want more information about topics such as disputes, then check out the official PayPal problems FAQ.

And don't forget to check out our other article, which covers how to use Stripe correctly when dropshipping. (Stripe is another popular payment gateway for ecommerce stores)

And check out this article here to learn more about the best payment gateway combinations when dropshipping.

If you have any questions or suggestions for this article, please let me know by commenting below or contacting me directly by clicking the “Contact Us” button at the top.

Thank you for reading, and I wish you good luck with your dropshipping journey!

Getting Started with Dropshipping in 2025

So, are you ready to get started with dropshipping? Or maybe you have already started, but you're looking to get some inspiration?

If so, then I suggest reading this complete Shopify dropshipping guide.

It's a huge article, but it contains everything that you need to know to create your own Shopify dropshipping store in 2025. It's like a dropshipping course, but then for free!

Reading this article will surely help you get started and stay motivated as you begin and continue your dropshipping journey.

Just don't forget that success takes time. Keep improving each and every day!

Shopify Dropshipping: A 20-Step Guide to Starting Your Store

And here are the articles I suggest you read next:

• 23 Awesome Shopify Dropshipping Store Examples
• Unique Dropshipping Store: 11 Amazing Tips to Create One
• 6 Things That Dropshipping Gurus Do Not Tell You As Beginner
• How to Find Winning Dropshipping Products (13 Research Methods)

And also, if you didn't create a Shopify account yet (to get your dropshipping store online), then you can click here to get a free 3-day trial + 3 months for $1 each!

Want to learn more about dropshipping?

Ready to move your dropshipping store to the next level? Check out the articles below:

• 9 Best Payment Gateways for International Transactions
• How To Accept Bitcoin (& Other Crypto Payments) on Shopify?
• Shopify Payments Alternatives: Best Payment Gateways for You

Plus, don't forget to check out our in-depth guide on how to start dropshipping here!