Does invoicing reduce fraudulent sales?

#1

I sell through PayPal, and in the past couple of years I’ve had 5 fraudulent sales (ie. the owner of the PayPal account disputed the sale by saying they didn’t authorise it).

The other day I saw PayPal’s Business app in Apple’s App Store, where it lets you invoice users for their purchase. After playing with it for a bit, it seems to me like it has the potential to reduce fraud, as you collect payment before the user gets their license for your product? So in the case of those 5 users, they would dispute the invoice without parting with their money first? And thus stop me sending a license key for no reason?

Am I right in thinking like this? That is: it’s better to go from taking their money and fixing the problem later, to fixing the problem first before taking any money.

Thanks.

#2

Interesting question. I don’t know the direct answer, but here are some thoughts I had:

  • Are the 5 fraudulent sales an insignificant % of your total sales? If so, maybe it is easier just to roll with it. It sucks when it happens, but it is better than making things more complicated for all the rest of your customers.

  • Do you think some “fraudulent” sales were actually genuine but the buyer changed their mind? If so, perhaps your sales copy and the “thanks for ordering emails” should emphasise your refund policy so that purchasers know they can ask for a refund without abusing the PayPal “report fraud” system.

#3

Hi Steve,

I think it was a little from both (although I can’t prove it). Two if the disputed sales were for one of my products, and the other three were when I had a “bundle” sale and the buyer got several products for one lower price, and then promptly disputed it once they received their licenses.

Therefore it seems to me that if they were invoiced first, and if it were truly fraud (ie. a hacked PayPal account), then the legit owner of the account would get the invoice and reject it, thus not waste anyone’s time with mistakenly-issued license codes and the refund procedure (which makes you look bad with PayPal).

I don’t suffer refunds or disputes enough for this to be an on-going concern, but I was more thinking this might be the best approach from now on just to avoid the possibility of them in future.

#4

The usual work flow is:

You send quote
Customer sends purchase order
You send invoice and license key
Customer pays invoice, usually within 30 days

But an alternative is:

You send quote
Customers expresses wish to pay
You send proforma invoice
Customer pays
You send license key

I would try not to loose too much sleep over the occasional fraud. It is just a cost of doing business, unfortunately.

2 Likes
#5

Thanks Andy. I suppose the invoice could include the EULA and Terms of Sale too, so the user knows what they’re buying into (ie. support is/not included by phone, update policy, etc). Just musing out loud.

#6

Depending on the amount and whether that customer purchased before, I also send a temporary license file with proforma invoice. Final one is sent after payment arrives. I set at least twice the time specified for payment, e.g. 60 days for temp license if invoice says payment in 30 days. Delays with invoices are not that uncommon. Generally, I realy hate dealing with invoices, I always try to direct customers to payment processor first.

#7

Normally EULA is part of your software install or onboarding and terms are on the website. It wouldn’t be usual to put them on an invoice.