13,370 things to consider when using @PayPal.

Imagine this: You go to your bank to withdraw some money and the teller tells you, “I’m sorry, we feel like you are somewhat of a risk so we’re going to hold onto a large chunk of your money.” You laugh nervously and reply, “That’s funny, but seriously can I have my money?”

The teller looks at you and says, “No, you can’t, not right now. I am sorry, we are going hold it hostage for an unspecified period of time. If you would like to access any of it again soon, I will need 6 months of bank statements, tax returns, various business licenses, pictures of your children, proof you have been to the moon and 11 more annoying things that will take you endless hours to prepare.”

A dozen expletives run through your mind, but instead you say, “Close my account and give me money now – please.” The teller then looks at you and starts laughing! She says, “I’m sorry to laugh, but the funny thing is that I could close your account, however we have a policy I have to enforce, and that policy says we will keep your money for 6 months and at that point you can have it back….. hahahaha isn’t that funny?”

So you think to yourself, “Man, I really like this bank and I want to work with them, but this is a lot!” So you weigh the pros and cons and decide to deal with it because it’s an important option to many of your customers and hope that as your relationship develops they will lighten up on you.

You spend the next two days chasing down the requested items. You print and scan documents, search through boxes looking for that file that always evades you at times like this. You even contact NASA for a copy of that photo from your last visit to the moon.

You prepare all of your docs, deliver them to the bank, and wait. And then you wait some more. Finally after a couple days, you go into the bank to check the status of things and to see if you’re able to access your money. The same teller is there to greet you. “Oh hey, how are you?” You reply, “Great, can I have my money yet?” Still smiling, she says, “Sure! Well, sort of. After reviewing all of your information and documents, we have decided to keep a reserve of $10,000 and 35% of any new incoming funds, so your  available  balance of $15,730 has been reduced to $5,730.”

Naturally, you ask, “What about the $10,000? What happens to that?” She replies, “Well, we are going to be keeping it for now (invest it and earn some money from it – thanks), and after 6 months you can request to have it released or reduced and at that point we will reconsider and let you know.” you scratch your head for a minute and think of other options and then you say, “Wow, ok ….. well, what if I decide to end this relationship and close my account?” She replies, your free to do that, but we will still keep the $10,000 for 6 months”

She goes on to explain their reasoning, you counter with a valid argument and at the end of the day, you realize you’re arguing with a brick wall. “She who holds the money – wins.”

The above scenario is very real and could happen to you.

I know  - because it happened to me.

I logged in to see if the $12,000 I had transferred from my business bank account to pay an affiliate had hit my PayPal account yet. I got a popup saying my account was suspended, with a contact email and phone number for more information. I then clicked around on my account and could see the $12,000 had successfully transferred. I tried to click the “Send money” button and it was disabled.

Our account with Paypal after the "freeze"

I went through the above described scenario, and it sucked. I was well aware of this scenario as I heard from a mentor that it could happen. In fact there is a story floating around somewhere about the formation of PowerPay – that was somewhat inspired or influenced by paypal holding hostage a marketers funds to the tune of around a million after a product launch. Can you imagine having a million dollars held for 6 months and affiliates who were expecting a paycheck in 30 days? Put that champagne away.

Why it happened – PayPal’s Reasoning:

• Why? – An increase in business over a short period of time. For  many months we had been slowly climbing in sales – not much of a jump from month to month. The growth and corresponding incoming funds were consistent. Then we had a few huge partners promote our products & services and our incoming funds probably went up 500% – 1,000% over the space of a few months. This drew a red flag.
• Paypal’s main reasoning – No commercial business credit: We have almost zero business credit and therefore PayPal doesn’t have anything to gauge our credit worthiness. Not that were asking for credit, but it gives PayPal a warm and fuzzy feeling if they can see you pay your bills. Understandable, but not fair.

Nothing more – nothing less. I argued with my contact  that we were a safe bet based on our history. I asked her to tell me how many refunds or disputes we had with purchases of our products or services that were done through PayPal. Her response – “zero”. Literally out of around 100 transactions we had ZERO refunds or disputes – yet that wasn’t good enough.  It’s actually ironic as we average around a 7% return rate, but with PayPal we had zero.

Should  I avoid PayPal altogether?

No – As bitter as I am regarding what happened, I still feel PayPal is good for your business. Many consumers only use PayPal, and others find comfort in using PayPal. The reality about the “held funds” is that it is still your money and you will get it back eventually. Also, when a consumer buys using PayPal, the money is available immediately.  With just about every other type of merchant account you have to wait 2-4 business days for funds to clear and arrive in your bank account. Just be aware that if you don’t have a lot of business credit and your online business sees a sharp rise in incoming funds, you might  have a sudden freeze of funds. How much you’d be able to access when the ice melts is completely up to PayPal. Truth be told , about 85% of our business goes through our merchant account. Only 15% of our buyers use PayPal. So the frozen funds don’t affect us as much as you might think.

In PayPal’s defense: I do have a friend who has been using Paypal for years without any issues. He has processed 7-figures+ and to date has had no problems. He does have business credit, and he has seen a slow steady rise in sales. The big difference between his business and mine is that he sells software, not a digital or information-based product or service.

What I recommend:

Get a merchant account with  PowerPay and offer your customers the option of paying with any credit card & PayPal as well. Most shopping carts will allow you to do just this.

PowerPay is a merchant account provider that understands Information and Internet Marketing. If you sell digital goods and plan on being successful, go with PowerPay.

www.powerpay.biz

I have heard story after story of banks & merchant account providers freezing funds, and every time the ending is not good. With PowerPay, your risk of this is minimized. They understand how your business works, and as long as you keep an open line of communication with them, life is gravy.

They may or may not hold a reserve on your account in the beginning or on an ongoing basis. They have several factors that will determine if a reserve is necessary or not. My account has a 5% reserve for 90 days, meaning 5% of all incoming funds are held for 90 days and then released into my account.

Aside from all of the benefits of using PowerPay, the thing I like most is that they  care about your business and seeing you succeed. You are NOT just a number. In my experience (and all of my friends’ experiences) with them – they have been more than fair. I have two accounts reps – who are amazing. (Tina & Kevin – if you’re reading this, thanks for all your hard work! I appreciate you more than you know.)

When I called up Kevin & Tina to tell them what had happened with PayPal,  they  had my account reviewed by the underwriting team at PowerPay and had my reserve lowered from 10% to 5%. This reduction mitigated the actions of PayPal big time.

Here is a testimonial I found on their website from a great marketer, Jeff Johnson. It sums up my feelings and the thoughts I have heard from others perfectly:

“PowerPay is the Best Merchant Account Ever! They never let me down, and I always get paid. I wish I could say that about the other merchant account providers I’ve used, but I can’t. Only PowerPay has proven that they truly care about helping my business grow.”

“Sign up right now and you’ll soon know what I mean when I tell my clients that Powerpay is ‘The Best Merchant Account Ever.’ Highly Recommended!”

- Jeff Johnson
www.UndergroundTrainingLab.com

Conclusion:

My hope is that by sticking it out with PayPal and establishing a history with them, our account will someday go back to the way it was. I will appeal our reserve as often as they allow me to, and hopefully soon it will be returned as they are literally holding all of our profit margin from those sales and then some.

I hope this post is helpful to anyone else caught in this situation or who might find themselves in one similar. This has been swirling around in my head ever since that fateful day with the laughing teller. So I hope you enjoyed it & learned something that might help guide you on your path to success online. This is the kind of information I was privileged to learn early on because I had a great mentor, but after hearing one horror story after the next, I felt like you might benefit from knowing this as well.

Tagged as: merchant account, payment processing, paypal, powerpay, small business, withholding