No seller wants to sell and ship an item then discover that the payment was fraudulent - resulting in charge backs by paypal and banks.  Here are several tips to help protect you from this situation.

Let me relate a personal instance in which this happened. I decided to start selling the popular electronics on ebay via dropshipping companies. Within a few days I had several orders.  WOW, this is great, making about $50 profit per item, without the worry of handling or shipping.  Hmm, until I receive an email from Paypal stating that I have a disputed payment, after investigation they reversed the payment, leaving my account $308 overdrawn - Ouch!!!  The buyer had frudulently obtained login details of others ebay and paypal accounts which they used to purchase and pay for an item from me..  This time I was lucky, The fraud was discover early enough for me to contact the courier and halt the delivery. Sending the item back meant that I could receive a refund on the item but not the shipping cost.

Reviewing details of the transaction in ebay, I realised there were several discrepancies which should have made alarm bells ring.  But being an honest person who wouldn't dream of cheating anyone, I never expected anyone might try to cheat me. In this case, the ebay ID was an American couple but the shipping address was in Turkey.  The paypal address was in a third name.

This experience has taught me NOT to automatically trust my buyers. Please note that the vast majority of buyers are genuine... but there's 1 in 1000 that may attempt fraud.  If you are too trusting they WILL catch you, and you will lose your money!!! Being too trusting will eventually come back and bite you in the butt!!! From my experience it would appear that the most likely items to watch for fraud are popular electronics like Ipods, Xbox, Playstation etc.  Out of five transactions for these items, three were attempting fraud.  If you sell these items, be especially careful.

So here are some things to watch for

1. Protect your accounts - NEVER include your login details for any secure site in an email or login from a link in an email, even if it appears to come from a trustworthy site such as ebay, paypal or your online bank - DO NOT click the link.  These sites never request you to login via a link in an email. To double check. you can manually enter the URL of the site that the email appears to have come from (eg. If it appears to have come from ebay, enter the URL www.ebay.com then sign in and check, ebay always sends their messages to your ebay message section as well as your email. All security concerns from your bank or paypal would be noted on their web pages).
2. Another CRUCIAL tip is to make sure your antivirus program is up to date and checking emails as they arrive. An up to date virus checker that is functioning correctly and checking emails should always detect any virus that may allow others access to your passwords etc and delete it.
3. When you receive a sale make sure that the shipping address matches the location of the ebay user. Check the location of the ebay user by clicking the "community tab" beside the "my ebay" tab on the ebay homepage. Enter the Ebay username in the search box, making sure to enter it correctly, then click "find a member". The username will show with the location to the right of the username.
4. When receiving a payment make sure the account is registered to the same surname as the purchaser. If the details don't match, check. If the payment came via paypal go to their help page and contact them via email asking them to verify whether the transaction is genuine. If the payment came via online bank deposit and you have internet banking, click the details link beside the transaction and check.  If it doesn't give an account name or you don't have internet banking then contact the bank.  If it was a cash deposit you needn't worry.
5. NEVER send the product before you have verified these details, especially for high value items like electronics or popular items like ipods and games consoles
6. NOW HOW IS THIS FOR SUSPICIOUS?  A customer attempts to purchase goods worth over $1,200 from me. I receive an email, supposedly from Paypal, stating that the money is paid into my account but won't be released until tracking details are submitted. Yet the payment did not show in my account, but if a payment is on hold with paypal it is shown with a status of temporary hold. Obviously, the fraudster faked a paypal email but mistakenly left a signature file at the bottom. Watch for this since paypal do not have signature files on their emails. When informed that I couldn't send the item before receiving payment and told to contact paypal and cancel the payment, they claimed they couldn't and practically begged me to send the items. So this buyer was suggesting that I purchase the items with my funds, then after it was shipped and tracking details supplied, I would receive payment... I DON'T THINK SO!!!  Had I been crazy enough to ship the item, I'm sure there would have been some excuse for the delay in payment until AFTER the item arrived, at which time they would have ceased responding to my emails. My advice here - Report this user to both Paypal and Ebay IMMEDIATELY.
7. Another way in which a buyer may attempt fraud is to claim that an item never arrived and request a refund.  The best way to avoid this situation is to send all items via registered mail (costs $2.50 in Australia).  This is especially important with expensive items.  Registering a package would deter most fraudsters from even attempting to claim that the package had not arrived. Because they know that proof of delivery is available. If a package is redirected to the post office because the intended recipient is not home for delivery, the recipient must provide identification before signing for the item
8. A new user signs up for an ebay AND paypal account.  Purchases an item, and pays using a STOLEN credit card through paypal. The best way to avoid this is by stating in your listing that you only accept paypal payments from verified paypal users. When receiving a payment, check whether the user is paypal VERIFIED.  If not, refund their payment via the refund section on paypal so that paypal will reverse their fees also. Then request that the customer become verified before making the payment again. Remind them that verification is free and simply involves paypal collecting a small amount of personal information from them to verify their identity and accounts. If they are unwilling to do this then it is entirely possible they are a fraud.  Please note: Because you stated that you only accept paypal payments from verified paypal users in your listing, you are perfectly within your rights to do this.
9. Another trick a buyer may use is to purchase an item off you, then request a second one before you send the first, promising to pay ASAP. They defer making the payment until you think it's unfair for them to wait for the first item they bought so you send both items together to save postage.  But you NEVER receive payment for the second item! Lesson here - if they haven't paid for it, DON'T send it. Send the first item by all means, but wait for payment for the second item before sending it. And make sure the sale goes through ebay.
10. Okay, this one is really annoying.  An ebay user purchased a 4gb ipod nano from me.  I had the item dropshipped to her.  She complained that the item was a refurb instead of new as stated in my listing.  I offered to have a new one sent out but she declined stating that another seller had already sold her a broken ipod and stating that she wanted a refund.  I arranged for the courier who delivered it to pick it up from her work.  But when they arrived she refused to hand it over.  She contacted me and demanded a refund before sending it back, I was a dumb bunny and did it because I felt bad for her with her sob story about the other seller. But the courier company did not want to try again so I asked her to mail it to me instead... guess what, IT NEVER CAME BACK. I had to pay for it but she got to keep it. The most annoying thing was I actually left her positive feedback in which I apologised for the mix up... I wonder if she's done the same thing to anyone since.  Hopefully they weren't dumb enough to fall for it.

I hope this guide has helped rather than scaring you. Let me assure you that both ebay and paypal are fantastic, with customer service to be admired. However, occasionally there are breaches of security.  As scary as they are, remember that they are not common. Taking these measures by no means guarantees you won't get fraudulent buyers (or sellers) as the means used to defraud are many and varied.  In fact, I am certain that if you searched all the tags for this guide you could find at least 20 other ways that people have used to defraud others.  The purpose of this guide is to make you aware of some of the ways fraud can be attempted and make you much less likely to suffer these types of fraud. Please note that I will update this guide as I become aware of other means that fraudsters use to scam sellers and buyers so feel free to check back.

If this guide has been helpful, I recommend that you check other guides for information on other fraud methods. Please remember to vote for my guide. Thanks