If you are an Indian business that accepts payments from international clients through PayPal, chargebacks can be a big headache. Unlike refunds, chargebacks don’t require your approval and you are at the mercy of the dispute resolution process.
Since PayPal prioritizes buyer protection, merchants find it difficult to get the funds back even when they have delivered the goods or services.
In this article, we will see why chargebacks happen, how Indian businesses can prevent them and the best strategies to protect your revenue when dealing with international clients.
A chargeback is a payment dispute initiated by a buyer through their bank or credit card provider and not through PayPal. Unlike a standard refund request where the merchant has control over the outcome, a chargeback automatically reverses the payment unless the seller disputes it. The buyer’s bank investigates the claim and decides whether to refund the payment or let the seller keep the funds.
For Indian businesses dealing with international clients, chargebacks are more complex and costly due to:
When a chargeback is initiated, PayPal will notify the seller and hold the disputed amount till the dispute is resolved. The process goes through the following stages:
The customer contacts their bank or credit card provider and claims they did not authorise the transaction, did not receive the item, or the item was not as described. The bank then reviews the claim and may issue a provisional refund to the buyer.
PayPal will deduct the disputed amount from the seller’s balance while the chargeback is under review. If the seller’s balance is insufficient, the account will show a negative balance till additional funds are added.
PayPal will allow the seller to submit evidence within a specified time (usually 10 days). Evidence can be tracking numbers, order confirmations, proof of delivery, signed contracts, and communication records with the buyer.
PayPal will forward the seller’s evidence to the card issuer or bank handling the chargeback. The bank will decide whether to return the funds to the seller or let the chargeback stand.
Note: Unlike PayPal disputes (which are handled internally), chargebacks are managed by the card networks (Visa, Mastercard, Amex), meaning PayPal has limited control over the outcome.
Chargebacks fall into four major categories, each posing different risks for Indian businesses accepting international payments.
1. Unauthorized Transactions (Fraudulent Chargebacks
Buyer disputes a transaction, and claims they never authorized it—often due to stolen credit cards or hacked PayPal accounts. This is a big problem for digital businesses, SaaS providers and e-commerce sellers who deal with global customers.
To prevent this, enable PayPal’s fraud detection tools, restrict transactions from unverified accounts, and manually verify large or unusual orders.
2. Item Not Received (INR Chargebacks)
Buyer claims they never received their order—whether due to shipping delays or disputes over digital product delivery. International shipping makes this a common issue for Indian exporters.
Use tracked shipping with proof of delivery for physical goods and maintain clear digital access logs for online services to counter such claims.
3. Item Significantly Different from Description (SNAD Chargebacks)
The customer feels misled about the product’s quality, functionality, or specifications and files a chargeback. Service providers also face this when the client claims the final output was not as expected.
Setting clear expectations is key—detailed product descriptions, high quality images and well defined service agreements reduce disputes.
4. Subscription or Recurring Payment Disputes
Many buyers forget they subscribed to a service and dispute the charge instead of canceling properly. If the renewal process is not transparent, disputes are more common.
To avoid this, send reminder emails before renewals, make the cancellation process simple and clearly communicate the refund policy upfront.
To prevent chargebacks on PayPal you need clear communication, strong fraud prevention and proactive customer service. For Indian businesses dealing with international clients, chargebacks can be costly and difficult to reverse. Below are key strategies to reduce disputes and save your revenue.
One of the most common reason for chargebacks is a mismatch between what the buyer expected and what they received. Misleading or vague descriptions can lead to “Item Not as Described” (INAD) disputes.
Best Practices:
Example for Indian Businesses:
If you’re a SaaS provider or freelancer, include detailed contracts and project milestones to avoid disputes. If you sell handcrafted goods internationally, state shipping times and return policy clearly.
Fraudulent chargebacks happen when a buyer claims they never authorized the transaction. This is a common issue for high value transactions, digital services and cross border transactions.
Best Practices:
Example for Indian Businesses:
If you’re a digital service provider, ask buyers to log in with their verified email before purchase.
Many chargebacks happen because buyers don’t know their refund options. A well crafted refund policy can encourage customers to request refunds instead of filing chargebacks.
Best Practices:
Example for Indian Businesses:
If you’re a software developer, have a revision policy instead of refunds. If you sell digital courses, have a limited time refund period to reduce chargebacks.
When disputing a chargeback, PayPal requires proof that the transaction was legitimate. Keep detailed records to increase your chances of winning disputes.
Best Practices:
Example for Indian Businesses:
If you run an export business, keep customs clearance documents as proof of shipment. For marketing or other digital services, keep delivered reports and email approvals.
Most disputes can be resolved before chargebacks if the seller responds fast. A good customer support system can help resolve disputes and retain buyer relationships.
Best Practices:
Example for Indian Businesses:
If you do B2B services, assign an account manager to handle disputes professionally. For an online store, use chatbot or WhatsApp support for real-time issue resolution.
Preventing chargebacks on PayPal requires a proactive approach. By having clear policies, verifying transactions, keeping records, and good customer support, Indian businesses can reduce disputes and protect their revenue.
Next up, we’ll see how to handle chargebacks when they do happen.
Even with all precautions, chargebacks are inevitable when you do business internationally via PayPal. The key to winning them is swift action, solid evidence and a well laid out response. Here’s how Indian businesses can manage chargebacks.
When a buyer disputes a transaction, PayPal will notify you via email and update the Resolution Center. The email will have the chargeback reason, the disputed amount, and the response deadline.
At this stage, review everything carefully. Chargebacks fall into different categories—unauthorized transactions, non-delivery claims, or disputes over product quality. Knowing the exact reason helps you gather the right evidence and structure your response accordingly. Since PayPal gives you only 10 days to respond, act fast.
PayPal judges chargeback disputes on evidence. The type of proof you need depends on the dispute category:
For Indian exporters and service providers, attaching GST invoices, signed contracts and shipping documentation will strengthen the case further.
Once you have collected the necessary evidence, craft a structured response. The goal is to present a clear fact-based case rather than emotional arguments. Your response should:
A well documented and timely response increases the chances of winning the dispute and getting your money back.
To minimize chargeback risks, always keep transaction records clear. Store all receipts, email communications, and proof of delivery for at least 180 days, as chargebacks can be filed after a long time of the transaction. Also be professional with your buyers. Many disputes arise from miscommunication and a proactive approach—like sending order confirmations, tracking updates and refund policies—can prevent escalations. Make sure your business meets PayPal’s Seller Protection eligibility and you have an extra layer of protection against losses.
Chargebacks are annoying but manageable. Respond quickly with solid evidence and keep your transaction records clear. Be professional and comply with PayPal’s policy and you will reduce the risk of future disputes.
While PayPal is popular for international transactions, its chargeback policy can put businesses at risk of unexpected losses. Karbon Forex is a safer option for Indian businesses with direct bank transfers and lower fees and stronger fraud protection.
Unlike PayPal where buyers can file disputes and chargebacks easily, Karbon Forex ensures transactions are final, reducing the risk of unjustified reversals. This is perfect for high value B2B transactions, export transactions, and service-based businesses dealing with international clients.
A smart approach is to offer PayPal selectively, offer it for low-risk transactions, and for larger transactions, offer Karbon Forex. This will not only minimize chargeback risks but also save you from excessive PayPal fees.
Yes, 3D Secure can reduce unauthorized transaction chargebacks by adding an extra layer of authentication during checkout. When implemented, it asks customers to verify their identity through their bank and shifts the liability from merchants to card issuers. But it doesn’t prevent “item not received” or “not as described” chargebacks so it’s just one part of a complete protection strategy.
Customer has 120 days from the transaction date to file a chargeback through their bank. But this can extend up to 180 days depending on the card network and bank policies. So Indian businesses should maintain transaction records for at least 180 days.
Yes, cross border transactions have 2-3 times higher chargeback rate compared to domestic transactions. This is due to shipping complications, language barriers and varying consumer protection laws across countries. Indian businesses serving international clients should implement stricter verification for overseas orders.
Yes, if you lose a chargeback dispute you can request a second review through PayPal’s Resolution Center within 30 days of the decision. But this is only possible if you have new evidence that wasn’t presented during the initial dispute.
Multiple chargebacks can impact your PayPal account status. If your chargeback rate is more than 1% of transactions, PayPal may increase your reserve requirements or higher transaction fees. Persistent high chargeback rate can lead to account limitations or termination.
PayPal Seller Protection covers eligible transactions against “unauthorized payment” and “item not received” claims. For Indian businesses, transactions must meet specific criteria including shipping to an eligible country, providing valid proof of delivery and maintaining proper documentation. But many digital services are not eligible for this protection.
Unlike PayPal transactions, international wire transfers through services like Karbon Forex are harder to reverse once completed. For high-value B2B transactions, wire transfers provide more security against payment disputes and are ideal for Indian exporters and service providers serving international clients.
PayPal disputes are handled within PayPal’s system while chargebacks involve the customer’s bank or credit card issuer. PayPal disputes can be resolved faster and with lower fees compared to chargebacks which have a $20 fee regardless of the outcome.
GST invoices issued properly can be strong evidence in chargeback disputes for Indian businesses. They provide legal proof of the transaction, establish the seller’s credibility and document the agreed terms. Always attach detailed GST invoices with your evidence when responding to chargebacks.
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