Loss Prevention for eBay Sellers

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What is Loss Prevention?

Retail businesses use a number of methods to reduce shrinkage and this is called loss prevention. Shrinkage comes from shoplifting, from employee theft, from administrative error, and from vendor fraud. Most retailers experience a shrinkage percentage of less than 2%, some smaller retailers often experience monthly and annual average shrinkage percentages as high as 20%.  If the percentage of shrinkage is too high it’s unacceptable and will eat into your bottom line. You must decide what is acceptable and then implement procedures to minimize shrinkage.

In this guide I will share what I have learned about minimizing shrinkage as an eBay seller. Whether you are an infrequent seller or a large business, this information may prove useful.

SHOPLIFTING - so you think you're not affected as an eBay seller?

Although sellers on eBay are not likely to be exposed to shoplifting as we know it, many have been victims of buyer fraud or having to refund buyers for parcels being lost/damaged in the mail.

What processes do you have in place to minimize your shrinkage through buyer fraud or lost parcels?  Just by saying in your item description that you are not responsible for lost parcels, or that you do not accept returns will not cover you. In fact, this may very well be illegal.

"The Trade Practices Act gives warranty and refund rights to consumers in Australia which businesses are legally obliged to honour. These warranties cannot be excluded from contracts for the sale of goods or services, even if they are sold online." - Australian Competition and Consumer Commission

More information: Refunds - guidelines for business - NSW Office of Fair Trading


So by law, buyers are protected if their item fails to arrive or if the item is not as described.

If the buyer purchased an item and paid by PayPal, they are also covered under the PayPal buyer protection. This is great for the honest buyers, but what about the small percentage that takes advantage of these laws to defraud the seller?

Many sellers have experienced this when a dispute was opened through PayPal, eventually the dispute was found in favor of the buyer and the payment was reversed despite the fact that the item was as described and postal receipts were shown as evidence the parcel was sent. This will also occur if the buyer makes a claim via their credit card company, credit card companies tend to favor the buyers and will simply reverse the payment.

So how do you cover yourself as a seller in these instances?

The seller must prove the item was sent by providing trackable evidence with the buyers name and address on the postal receipt, and must prove the item was as described.

I personally found that the instance of "lost parcels" was higher when I used pre-paid satchels. For this reason I now purchase blank satchels, lodge parcels at the post office so that I have an actual receipt for each and every parcel that is sent. On the receipt, each parcel is itemized with the postcode and weight of the parcel. This has come in very handy when parcels have been lost in the past. You need to show evidence when you make a claim with the Australia Post office in the case of lost parcels.

DID YOU KNOW? - If a parcel is lost, Australia post can compensate up to $50 even if the parcel was not registered. You must provide proof such as a postal receipt with postcode of the receiver and weight of parcel and you will increase your chance of being awarded the compensation.

NOTE: Only senders can claim compensation for lost parcels. Australia post will not accept claims from receivers. You need to factor in the time it will take you to fill out forms, make phone calls, communicate with buyers etc. I would spend easily 2-3 hours managing claims for each lost parcel.

For parcels over $50, I advise the buyers that registered post is required, especially if they are paying by PayPal. PayPal do not accept just a postal receipt as proof of postage, you must also show the name and address of receiver on the actual proof of postage and this can only be done via the registered post. Even if proof of registered postage is shown, there are other conditions the buyer & seller must meet before a claim is found in the sellers favor. If the buyer paid by PayPal and they are not a verified PayPal user or the parcel was sent to an unverified address, the seller is not protected by the PayPal seller protection policy, and the buyer will win the case. Sadly, the deck is clearly stacked against the seller, and this is to protect the buyer and encourage more buyers to use the eBay & the PayPal facilities.

DID YOU KNOW? - Although express post is trackable, it is not insured. Express post is only trackable between the lodgment post office and the receiving post office. Once an express post parcel was scanned at the receiver’s post office, it is then marked in the system as delivered. I have had once an express post parcel not received by the buyer and because it was scanned as received at the post office, as far as Australia Post was concerned, the parcel was delivered and there was nothing that could be done. In this case, to keep the goodwill of the buyer, I refunded the money and allocated the costs to shrinkage.

What in the case of actual buyer fraud? Unfortunately, it's going to happen sooner or later and you better be prepared. If you read the eBay community boards, from time to time you will come across distressed sellers asking for help in regards to buyer fraud. Although quite rare, it has happened when an unscrupulous buyer will claim they have received an item not as described, make a claim with PayPal and receive a refund. The seller is not only out of pocket for the amount, but also the product.

What you should do:

  • Keep a postal receipt for each and every parcel sent under $50  - the chances are good you will be compensated by Australia post if the parcel is lost or damaged
  • Insist on registered post for parcels over $50, in some cases you can add value by including the registered post in the final price. Even if a PayPal dispute is found against you, you are not out of pocket as you can make a claim with the Australia Post
  • If you post more then 20 parcels a week, consider e-parcels, a registered online trackable service provided by Australia Post
  • Allocate around 2% of your gross sales towards shrinkage to cover your losses in the case of buyer fraud

Even if you do not have a physical shop and sell on eBay, you should budget a certain amount each year towards shrinkage. You do this by allocating the cost of loss in the final sale price of items. When you're prepared and have allocated some funds to cover your losses, you are more in control of your business. 

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