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As one of the most widely used payment systems in the world, the all-too-common event of PayPal money on hold, or “frozen funds,” is an especially frustrating experience for merchants depending on the platforms for their business operations. And unfortunately, the digital provider is known to hold merchants’ funds for extended periods of time, potentially impacting cash flow and damaging operational viability.
If your business uses PayPal, understanding the platform’s restrictions and limitations can help you avoid costly problems, including the occurrence of frozen funds. This guide explores PayPal funding holds, explains how to operate your business when PayPal freezes your account, and a host of other topics related to the aggravating experience. Let’s get started!
Why Is My PayPal Money on Hold?
As a payment service provider, PayPal puts money on hold for various reasons, some of which are not the result of a merchant’s actions at all. Below explores the seven most common reasons PayPal puts money on hold.
1. New to using PayPal for sales
When you begin accepting sales through PayPal, your money can be held for several days to verify the credibility of your transactions. PayPal needs to determine the likelihood of transactions dispute or chargebacks associated with your account to gauge your trustworthiness.
As you establish a history of dependable transactions over an extended period of time, PayPal removes its holds and allows you to instantly access transaction funds. This is an inevitable part of the process most PayPal merchants go through when opening an account.
PayPal applies these initial constraints to prevent short-term scams from materializing on its platform. Without these holds, malicious actors could set up new accounts, scam consumers, and withdraw money before PayPal is none the wiser—leading to customers losing money without any recourse.
2. Too many disputes
When customers dispute PayPal charges, it impacts your business’s reputation with the platform. Because transaction disputes typically indicate there is a problem with your business’s products or customer service, PayPal may begin holding funds if disputes become a common occurrence for your business.
PayPal customers have a range of options if they want a refund from a merchant. Below are the three types of disputes resulting in frozen funds:
- Dispute: Disputes occur when a customer wants to resolve a problem with a product or service without submitting a formal claim. When a customer files a dispute, you have 20 days to resolve the issue.
- Claim: If you cannot resolve an issue via the dispute process, a customer may file a claim. A claim is a formal process in which PayPal reviews the transaction information and determines whether to initiate a payment reversal. Your business has ten days to respond to a claim.
- Chargeback: If a customer makes a purchase with a credit card, they can file a chargeback on the transaction. This action falls outside of PayPal’s jurisdiction, as the customer’s credit card issuer is responsible for investigating the chargeback and determining its legitimacy. However, PayPal will penalize your business if your chargeback ratio exceeds acceptable limits.
3. Suspicious selling patterns
PayPal tracks data on its platform for suspicious selling patterns. The minimize exposure, PayPal often freezes accounts with questionable sales patterns. However, PayPal usually views variations in revenue as an indication of fraudulent behavior, so it’s they may freeze your account if they notice increased transaction sizes, essentially penalizing your business for its growth. Though your business’s growth may be genuine, PayPal will likely err on the side of caution and put your account on hold.
4. Selling high-risk items
Selling high-risk items on PayPal may result in funding holds. As a payment service provider, PayPal’s underwriting system is not built to support the complications associated with high-risk industries. Therefore, the platform is more cautious about providing immediate funds if you sell products and services its deemed risky.
5. PayPal account has been inactive
You may lose access to instant withdrawals if you don’t routinely use your PayPal account. If your account was dormant and suddenly experiences a surge in usage, PayPal may freeze your account or hold funds for a short period of time as a security measure.
6. Suspected unauthorized users
If PayPal suspects someone else is using your account, the platform may place it on hold. PayPal views the use of someone else’s account as a way to circumvent account controls associated with your account.
7. Regulatory requirement problems
Lastly, PayPal must ensure its accounts comply with regulatory requirements. If PayPal suspects your business evades legal frameworks governing payments, donations, and other transactions, it may freeze your account.
This issue may specifically impact non-profit organizations. PayPal will likely require additional information proving non-profit status if your organization accepts donations via its payment platform.
How to Get PayPal to Stop Holding Funds
If PayPal holds your funds, it may severely impact your business operations. Unfortunately, successfully releasing frozen funds on PayPal can be a challenging process. Let’s explore some tips and tricks to help you regain access to your funds!
Provide proof of establishment
You may need to provide proof of the establishment of your business if you want to unfreeze your PayPal account. This can include tax documents, bank statements, and other information verifying the legitimacy of your business.
Provide proof of identity
In some cases, your account may be frozen due to doubts about the validity of your identity. You may need to send images of your passport, driver’s license, or other forms of identification to prove you are a legitimate account holder.
Provide proof of product
PayPal may request you provide proof you once possessed the product you sold. This may come in the form of photographic evidence from your supplier.
Provide proof of shipment
PayPal will likely ask for proof your product shipped. Evidence may include tracking and shipping details, signature delivery records, and other relevant documentation proving the delivery successfully occurred.
How Long Will PayPal Hold My Money?
If your PayPal account has been frozen, you might wonder what the timeline is to get your money released to you. Unfortunately, there is no clear answer. If the transactions can be easily verified, some holds may last only a few days; however, other holds can last up to 180 days. In more extreme cases, the holds can become permanent and result in account termination.
How can I get my money unlocked faster?
As previously mentioned, providing proof of identity, establishment, products, delivery, and other core details may help you access your funds. However, PayPal is notorious for its strict frozen funds policy, meaning the platform may choose to wait days, weeks, or even months to unlock your funds.
Unfortunately, this is the harsh reality of being at the mercy of a low-tolerance payment services provider. Partnering with other merchant service providers in conjunction with PayPal will help you reduce operational hindrances associated with account freezes. One such avenue is obtaining a merchant account, which affords merchants more control over their payment processing.
Tips for Operating Your Business When Your PayPal Account Is Restricted
In the event PayPal restricts your account, you may not be able to afford to stop operating your business until its finally unlocked. Let’s explore some alternative options available to business owners while their PayPal account is on ice.
Use other alternative payment options
Today, there are many payment solution options from which merchants may choose. Other payment service providers provide services similar to PayPal’s offerings. If you’re considering alternative payment service providers, refer to our Stripe vs PayPal or Square vs PayPal comparisons to see how payment solutions differ.
However, you still need to abide by the strict terms of service and avoid disputes if you would like to use other payment service providers. Because merchant accounts are tailor-made to your business’s exact needs, you won’t face frozen funds or account termination based on your products, sales volume, of other elements baked into your operations. While merchant accounts have more lenient holding standards, new accounts may still be subject to authorization holds to verify your first few transactions.
Because of the underwriting process necessary to obtain a merchant account, they often offer lower rates and compared to PayPal’s processing rates. As such, merchant accounts can be an extremely advantageous payment processing solution—sidestepping the whims of PayPal’s account management team and improving your bottom line.
High-risk businesses, which are at an elevated risk of frozen funds and account termination, may benefit from closing their PayPal account and switching to a merchant account provider with the necessary resources to give them the support they need. However, not all merchant account providers are made equal, as some are just as poorly equipt as PayPal in servicing high-risk businesses. If you’re considering this route, opt for a merchant services provider with the expertise and resources to properly support high-risk businesses.
Open a separate PayPal account
If you don’t want to use another payment platform or if your customers are only willing to use PayPal, you can attempt to open another PayPal account. For example, if you only use a Business account, opening a Personal account will allow you to accept payments again. However, the platform prefers its users to have only one PayPal Business account and one PayPal Personal account. Opening multiple Personal accounts to bypass PayPal’s terms and conditions may result in further account restrictions and the possibility of account termination.
6 Ways to Prevent PayPal From Holding Your Money
While you can’t always prevent PayPal from holding your money, you can implement certain business practices to avoid future funding delays. Using the below tips and tricks to maintain your account’s good standing can help you bypass problems impacting your business’s ability to operate.
1. Provide exceptional customer service
Providing excellent customer service to your customers helps avoid disputes, claims, and chargebacks, which can lower your chances of PayPal funding holds. Customers may dispute payments if they’re frustrated with poor-quality service, shipping, and products. Ensuring you offer friendly and effective customer support remains essential in keeping your PayPal account in good standing.
2. Communicate with customers openly
As a function of your customer support system, make sure you communicate openly with your customers. Ignoring customer requests about return policies, shipping policies, and product issues will not make their complaints disappear. Engaging in an open dialogue with disappointed customers continues to be one of the best practices for avoiding disputes.
3. Prevent chargebacks and disputes
Disputes, claims, and PayPal chargebacks all reflect your business in a negative light, so it’s wise to avoid them at all costs. Here are some strategies to help you reduce exposure to said events:
- Use Your Trading Name: Using your personal name on your PayPal Business account can confuse customers, as they may not recognize the payment. By using your trading name, chargebacks can be easily avoided.
- List Policies Clearly: Whether a shipping, return, or other policy, be sure to outline any and all issues your customers may experience. If your policies aren’t clear, your customers may initiate valid chargebacks.
- Write Accurate Product Descriptions: Misleading product or service descriptions can result in chargebacks. Ensure your product descriptions are accurate to avoid issues.
- Use Tracked Shipping: Partnering with a shipping provider that offers tracked deliveries makes it easier to confirm if a customer receives a product or not. Customers attempting “friendly fraud” may claim they never received a product from you—and they’ll get away with it if you don’t have documentation!
- Retain Information: Retain all evidence regarding transactions, including transaction data, server data, shipping information, online policies, product descriptions, and communication with customers. Many credit card networks allow customers to file chargebacks up to 120 days following a purchase, so don’t get rid of evidence that may be useful in 119 days.
Incorporating the above into your operations can help your business reduce its chargeback ratio, thus avoiding the nightmare of a frozen PayPal account.
4. Review PayPal alerts and email notifications
Always review PayPal alerts and email notifications to ensure you don’t miss specific issues pertaining to transactions. In the case of a claim or chargeback, you must respond to the issue within ten days if you wish to challenge it. Additionally, prompt responses are a requirement of PayPal’s Seller Protection Program. Failing to respond can leave you with hefty fees and other financial difficulties. Fortunately, it’s easy to set up PayPal alerts on your dashboard.
5. Avoid high-risk goods and services
As discussed above, PayPal may freeze funds if you supply high-risk goods and services to your clients. The platform may deem your business too high-risk for instant access to your hard-earned cash, leaving you in a financial bind. Businesses can either choose to avoid selling high-risk goods and services or choose to work with a merchant account provider specializing in high-risk businesses.
6. Make sure your organization complies with regulations
Not complying with federal payment regulations can result in PayPal freezing funds. If you accept donations, retain all relevant documentation about your non-profit status. PayPal may require you to provide these documents.
Final Thoughts on PayPal Frozen Accounts
PayPal account freezes can leave business owners without answers and, worse, without their hard-earned money. Obtaining multiple payment channels can keep your business running smoothly if PayPal decides to put your account on hold. As one of the most beneficial options, high-risk merchant account providers offer lower processing fees and more control over your payments.
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FAQs About PayPal Money on Hold
Is there a PayPal bank transfer limit?
If you want to transfer money from PayPal to your bank account, unverified accounts have a transfer limit of up to $500 per day.
If you have a verified account, you can transfer any balance from your PayPal account to your bank account. Some verified accounts are subject to PayPal transfer limits between $10,000 per transaction; others up to $60,000 per transaction. However, there is no overall limit on per-day transfer volumes for verified accounts, and limitations are only for single transactions.[1]PayPal. “What is the maximum amount I can send with my PayPal account?“. Accessed December 7, 2022.
If PayPal flags your business as suspicious, you may face lower per-transaction limits than those listed. For this reason, keeping your PayPal account in good standing is critical to avoid damaging your operations.
Can PayPal also freeze your bank account?
No, PayPal does not have jurisdiction over your personal or business bank account. If PayPal freezes your PayPal account, this does not impact bank accounts held at other financial institutions.
However, this doesn’t mean committing fraud or other prohibited activity via PayPal won’t result in consequences in other areas of your business. If PayPal reports fraudulent behavior to authorities, a formal investigation may result in frozen assets and other repercussions. Nonetheless, this requires intervention from the legal system, as PayPal doesn’t have authority over your assets outside of your PayPal account.
How long will my PayPal account be locked?
Unfortunately, there’s no set timeline for how long your PayPal account will be locked. PayPal has different procedures, depending on the reason your account is frozen. In some cases, especially those related to suspected fraud or other serious allegations, you may no longer access PayPal, thus losing your ability to process payments altogether.
If my PayPal account is limited, can I still use it?
In most cases, if PayPal limits your account, you won’t be able to use it. Unfortunately, PayPal won’t provide an exact timeline for when you’ll be able to access your account again, and you may be permanently frozen out of your account. This is why it’s always critical to have other payment processing options available to your business.
