As you probably know, the last 6 months since the MK2 release were quite a ride 🙂 And now PayPal blocked our funds! We cannot send money, cannot transfer them to our bank and we cannot even refund customers. This happened without warning over night and of course you don’t anticipate things like this. We cannot pay our suppliers with PayPal, which is what we used to do. You ask why? We grow too fast, we do not ship immediately so PayPal probably thinks we want to run away with the money. The fact that we had only around 3 chargebacks in our 2-year history doesn’t matter to them. The only logic is = growing too fast, something is wrong.
How does partnership with PayPal work?
After you go thru the initial checking, you haven’t won by any means. PayPal is actually very conservative and they will make your road to success increasingly rocky.
First problem for a Czech company is that the only way how to get the funds out of Paypal is to transfer them to your bank account. A little catch is in the fact that it can only be done exclusively in Czech crowns after converting with a very bad exchange rate. So on top of their normal transaction fee you lose roughly another 2% on top of that.
Right after you sell more than $100,000 monthly, everything above that will be held for 21 days. Once a month you can ask for increasing the release amount, but you will be ignored for a couple of months. They will eventually increase it by $50k and you have to ask again and again …
After some time, they realize it is not enough and they increase the release limit drastically. But they also employ a so called rolling reserve, for example they will hold 12% for the duration of 60 days. We were ok with this as reserve in case something went really wrong… but..
When the rolling reserve grows to several hundred thousand dollars, they block your funds altogether. They even block the option to refund customers who ask for it, for example when they change their minds during waiting.
When you explain to them how anti consumer this is, PayPal will allow you to work with a few percent from the new payments. Right now we don’t have any new information but last information was that they will release funds for printers we shipped. Because our delivery dates are 5-6 weeks it might seem like a reasonable thing but customer can dispute undelivered goods for up to 180 days on PayPal. What Paypal is doing right now would make sense only if we are about to go bankrupt or running away with the money.
For PayPal you are always a possible scammer and fraud. We told them that we will have a bump in the sales. Sent them the Make: magazine explaining what is going on but no one cares. They don’t care about the important information, they always ask for historical records but nothing about our stock of parts, how many employees we have and if we are shipping on schedule we promised. Growth = problem, at least by PayPal logic.
Fortunately we were preparing for the growths meticulously, so after all it will not hurt us from the cash flow standpoint too much but I am 100% positive that for some companies not so well prepared this would mean the end.
So my tips are:
- Always have more payment processors – if you rely solely on PayPal, even though it is very comfortable, sooner or later you will have the same thing happening to you. It was comfortable for us as it is not easy to get a US processor from Europe, but we’ll move away as fast as possible.
- If you are using PayPal, transfer the funds to your bank account as often as possible and have a backup processor prepared.
- PayPal is not your partner but a potential problem. It happened to many companies before and it will eventually happen to you too.
Bonus fun facts:
- They kept telling us on the phone “it is for your own good”.
- They didn’t get back to us for 2 weeks already.
- You don’t even get to know the sure name of the people you are dealing with, not to mention direct contact to them.
Updated 28th December 2016
Right after publishing the original post, we got contacted by Indian hacker who knows recipe how to release locked funds instantly 🙂 We did not take his offer.
Our article got published on all 3D printing news websites and generated a lot of traction. Next day after this publicity, new PayPal account manager contacted us. We even know the full name and have direct phone contact. WOW!
We got roughly 1/3 of our funds unlocked, basically all the transactions which have already been shipped. Same will apply to the rest of the funds.
We finally got Adyen (used by Uber, Airbnb, Netflix and others) set up as second payment processor for US and if it will prove itself we will turn off the PayPal. Adyen doesn’t force us to convert everything to czech crowns with bad exchange rate and allows for other payment methods as Giropay in Germany.