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Pay processors do not support outsource dropshipping.

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#1
You may have heard of sites such as Shopify which is an e-commerce platform, and there number one promoting scheme is to sell you on the idea of dropshipping, however, what they do not tell you is that pay processors do not support outsource drop shipping, and by the time you find out, then your like what the hell?

In-house drop shipping:

This is the model that pay processors support, and in-house drop-shipping means you have the product in your possession, and this can also mean that you manufacture your own products and ship your own products from your warehouse, and if something goes wrong, then you can fix any issues quickly.

Outsource drop shipping:

This means you do not manufacture or ship your own products, in essence, you probably order your products from another source such as aliexpress, then the vendor on express ships your order directly to your customer which normally can take 4-8 weeks, and these products are not in your control, nor are they in your warehouse, or in your possession, however, there is an exception. If you order products from aliexpress, and they come to you or your warehouse, then you would be in control of your products, then you would be able to qualify as in-house drop shipping, and you should not have any issues with your payment processor.

If your payment provider such as Paypal decides to audit you, then you would need to provide proof, and they may ask you to send them vendor invoices, and if your invoices have vendors from overseas, then there is a good chance that Paypal will close, limit, or even ban your account for terms violation.

Payment providers have a hard enough time keeping up with massive transactions, and they do not want to go through outside sources to solve problems, and I suspect the biggest reason pay providers do not like outsource drop-shipping is because of risk since outsource drop shipping has been classified as a risky business. If your outsourced vendor decides to fold, then you and your payment processor have to deal with the fallout.

Payment providers want you to ship your product fast and in a timely manner. If someone orders from your site at 3 am, then your customer's order should be processed and shipped the same day, or the very next day, and you should also notify your customer that their order has been processed and/or shipped, and if the order takes more then 3-5 days to get delivered, then you are going to have problems, and you may start getting complaints, or even disputes which can add up, and be costly.
 

chameli

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#2
Dropshipping is you sell the products from your website, however, the product will be shipped to the buyer by another company. After you receive the order on your website, you forward the orders along with the payment (you cut your commission) to the company that actually sells the product. In order to drop ship you do not have to possess the products.
I don't think there is something like in-house dropshipping. If you already have an inventory, you are selling directly and not doing dropshipping.
 

Gabbar

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#3
I think its pretty easy to work like that and make money, I am actually thinking of doing that but I need some more guidance so that I can start it soon.
 

overcast

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I think shopify becomes popular for same reason. They are acting as middle man and they are processing the payments on both sides. This way they are taking risk on customer front. And they are managing the outsourced approach. I think it does work as long as you have proper escrow for refunds too.
 
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