Discover the Perfect Payment Gateway for Dropshipping
Table of Contents:
- Introduction
- Why do payment processors hold funds?
- The drawbacks of using PayPal
- Stripe as an alternative payment gateway
- An overview of Shopify Payments
- Tips to prevent funds from being held by payment processors
- Tip 1: Get quick shipping
- Tip 2: Provide tracking numbers
- Tip 3: Prioritize customer support
- Tip 4: Offer refunds when necessary
- Alternative payment processors
- Authorize.net
- Easy PayDirect
- 2Checkout
- Pros and cons of each alternative payment processor
- Conclusion
Why Do Payment Processors Hold Funds?
Payment processors like PayPal, Stripe, and Shopify Payments have the authority to hold funds for a certain period of time. This can be frustrating, especially for drop shippers who rely on a steady cash flow. Understanding the reasons behind fund holds can help prevent potential issues in the future.
Customer satisfaction is the primary reason why payment processors hold funds. They want to ensure that customers have a positive experience with the products or services they purchase. However, drop shipping can be classified as a high-risk business model due to factors like long shipping times, poor product quality, and inadequate customer support. These issues can lead to a higher number of claims and refunds, which is why payment processors take precautions.
The Drawbacks of Using PayPal
PayPal is a widely used payment gateway, but it has its drawbacks for drop shippers. As a seller, you may experience fund holds once you reach a certain revenue threshold. PayPal might request company documents and proof of inventory, which can be challenging for drop shippers to provide. This often leads to funds being locked for an extended period. Additionally, PayPal's classification of drop shipping as a high-risk business model makes it less favorable for sellers, especially when compared to buyers.
Stripe as an Alternative Payment Gateway
Stripe is another popular payment processor that offers a more seamless experience for sellers. While fund holds are less common with Stripe, they may occasionally withhold a small percentage of funds if there is an issue with a high refund rate. However, once the issue is resolved, the withheld funds are released. Overall, Stripe has a more transparent and accommodating approach compared to PayPal.
An Overview of Shopify Payments
Shopify Payments is an integrated payment gateway specifically designed for Shopify users. While it is not extensively used by all drop shippers, it has received positive feedback from many sellers. Shopify Payments functions similarly to Stripe, offering a smooth payment process and minimal fund holds. However, considering the potential limitations of using Shopify as a platform, some drop shippers may opt for other payment options.
Tips to Prevent Funds from Being Held by Payment Processors
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Get quick shipping: Offering shorter shipping times can significantly reduce customer dissatisfaction and refund requests. Utilize suppliers with products stored locally or explore dropshipping options that guarantee faster delivery.
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Provide tracking numbers: Transparency is crucial in delivering a positive customer experience. Supply customers with tracking numbers so they can monitor their package's progress. This also prevents unnecessary customer inquiries and refund claims.
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Prioritize customer support: Take the time to engage with customers and address their concerns promptly. By providing satisfactory support, customers are less likely to resort to chargebacks or contact payment processors.
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Offer refunds when necessary: If a customer requests a refund due to genuine reasons, it is best to accommodate their request. By resolving issues directly with customers, you prevent them from escalating the situation with payment processors.
Alternative Payment Processors
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Authorize.net: Known for its compatibility with various platforms, Authorize.net is a versatile payment processor. However, it charges slightly higher fees and requires a registered business.
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Easy PayDirect: Designed for high-risk businesses, Easy PayDirect offers more control over refunds. Although it requires an application process, it provides a seller-oriented approach.
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2Checkout: Backed by Vantiv, 2Checkout serves as an option for sellers worldwide. It has relatively higher fees but can be considered as a backup option when other platforms are not available.
Pros and Cons of Each Alternative Payment Processor
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Authorize.net:
Pros: Integrates with multiple platforms, offers forgivable refunds.
Cons: Higher fees, requires a registered business.
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Easy PayDirect:
Pros: Provides more control over refunds, caters to high-risk businesses.
Cons: Requires an application process.
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2Checkout:
Pros: Global coverage, serves as a backup option for unavailable platforms.
Cons: Higher fees.
Conclusion
Selecting the right payment gateway for your dropshipping business is crucial to avoid fund holds and maintain a positive customer experience. While PayPal, Stripe, and Shopify Payments are widely used options, it is essential to consider alternative payment processors that align with your business needs. By implementing the suggested tips and exploring alternative options, you can navigate the challenges of fund holds and ensure a smoother dropshipping journey.
Highlights:
- Understand the reasons behind payment processor fund holds.
- PayPal's drawbacks for drop shippers.
- Stripe and Shopify Payments as favorable alternatives.
- Tips to prevent fund holds, including quick shipping and efficient customer support.
- Alternative payment processors: Authorize.net, Easy PayDirect, and 2Checkout.
- Pros and cons of each alternative option.
- Choosing the right payment gateway for a successful dropshipping business.
