Is dropshipping fraud?

"I finally received the order I purchased, however, the receipt that came with it says a charge of $xxx and my credit card was charged $xxx. I expect a refund of the different immediately or I will report you for fraud."


I drop shipped a item from a retail store, no bootleg or anything like that

Is that legal? or Is that fraud?

Its not fraud. All merchants are fraudsters then ? Because all of them buy and sell at different prices. Tell the client the receipt was for a similar but a different product, therefore with a different price. Photoshop a new receipt and send it to him just to shut him up, or don't worry about it.

Usually the offensive argument is that it's fraud because you don't actually have the item in stock. I personally don't think that's a stable argument because if you are confident you can get the item, why not sell it? Plus, many businesses - auto shops for example - order products from a catalog at, say, 40% off MSRP and sell it to you at 5-15% off MSRP. That's dropshipping in principle.

Your guy just obviously doesn't understand the fundamentals of capitalism.

Tell him he can have his money or his item, not both. Full refund or nothing. Since he obviously wants the item, he'll keep it.

its not a fraud.

Wouldn't the fraud part come into play when it comes to filing taxes? If the guy is trying to write it off on his taxes as a business purchase, he needs a receipt showing the full payment that he made. A credit card receipt is not proof enough, he needs a full physical receipt for the actual cost paid.

Definitely not fraud, if it were then every product sold by a reseller instead of by the manufacturer would also be a fraud. Generally the chain is manufacturer>distributor/wholesaler>retailer... you're just an extra step, but still no legitimate claim for the buyer to accuse you of fraud.
If you're dropshipping from a store, there are a couple of options that I've seen. One is to always specify it's a gift, so it won't include a price on the receipt, the other is to hope nobody complains, and if they do, just say something like this:

"I accidentally ran out of stock, so instead of not being able to deliver your item, I ordered one from a store out of my own pocket and had it shipped to you."

That trick has been successfully used by people here on BHW who dropship movies etc from retail stores.

Best of luck!

bl4ck1ce said:

Definitely not fraud... buyer...specify it's a gift... trick

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You see those words I quoted? Sure makes drop shipping look legitimate! It is NOT fraud in general, but the way most people do it is fraudulent. They commit fraud to avoid paying proper taxes, duty, border/customs fees etc. You can not give someone a receipt for what YOU paid. You have to give them a receipt for what THEY paid.

The customer doesn't have to send back the item, you have to provide them with a proper receipt when they request one. If you are located in the USA or Canada, you are risking a full audit when one of the customers complains about this to the IRS/CRA. Not sure about other countries.

It's not fraud that's how business works. Every single item imaginable has a middle man profiting from the transaction between the manufacturer and the customer. Next time I would suggest sending the item as a gift. Usually this option doesn't include a receipt.

DamnTees said:

Next time I would suggest sending the item as a gift. Usually this option doesn't include a receipt.

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You would suggest mailing a SOLD item which was paid for, marked as a gift? And then what do you think the buyer will do when he receives it and has no receipt to claim the cost of the item on his taxes (if he needs it)? He will report you to FedEx or CanadaPost, or worse, to Customs if it crossed the border. Then FedEx/CanadaPost will investigate and all hell breaks loose.

My god. You do understand you just told him to commit fraud, right?

I've all but abandoned my dropshipping business over the last year, but even when I was selling stuff I never marked anything as a gift. It is a standard practice in this business though, so I thought it was worth mentioning...

As for motives, I didn't dropship stuff because I wanted to cheat on my taxes, I dropshipped stuff because I didn't want my home to look like a warehouse, or to spend half my day lugging packages to the post office anymore. Been there, done that, got tired of it.. I didn't find it as profitable doing dropshipping, but it was so much easier that I didn't really mind.

And as far as the "OMG That's Fraud!" response...? This place isn't called Black Hat World because of our collective appreciation for dark colored head gear.

that was a joke btw.. I fully understand where you're coming from, it's the same reason why I won't use many of the techniques presented here.. I still enjoy reading about some of them though. If an idea is outside of your comfort zone, then that's cool, you don't have to do it..

To the OP:
Another option is to order multiple items from the same retailer to save on your shipping costs, then repackage them to send to your buyer... I know of some retailers that offer free shipping over a certain amount, so if you batch your orders you could get around the problem of the buyer ever seeing a different invoice/receipt with their item.. Yes, It adds an extra step and increases shipping time by a few days, but you will completely avoid the issue you've got right now.

no it's not a fraud.

Kickflip said:

You would suggest mailing a SOLD item which was paid for, marked as a gift? And then what do you think the buyer will do when he receives it and has no receipt to claim the cost of the item on his taxes (if he needs it)? He will report you to FedEx or CanadaPost, or worse, to Customs if it crossed the border. Then FedEx/CanadaPost will investigate and all hell breaks loose.

My god. You do understand you just told him to commit fraud, right?

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No he didn't actually tell him to commit fraud.

There's a difference between selecting the "order item as a gift" option from a retailer and declaring the item as a gift on customs forms.

Most retail stores have an option to order the item as a gift if you don't want the store to include the prices on the shipping tags. "Gift" might be the name the store is using for the option, but the function of the selection is just to prevent including prices on the shipping invoice. The stores gift option is not the same as declaring the item as a gift on a customs form. Selecting the option will only suppress the prices on the shipping invoice, it has no effect of avoiding any taxes or fees for him or the customer.

The customer is absolutely entitled to have a receipt, but that receipt should be provided by the seller, not the supplier (who in this instance just happens to be a retail store). If you select ship the item as a gift when you place the order, and then email the customer with a receipt from you then you've provided what is necessary. Doing that is certainly not going to be considered fraud.

On the other hand if you're shipping items internationally and put "gift" on the customs forms in order to avoid customs fees, then that can definitely be considered fraud. It's done all the time and rarely does anyone get caught for it, but it is fraud nonetheless and there is always the chance of getting caught when doing so. But that's a totally different thing than what's being suggested by having a store item shipped as a gift to avoid having prices included on the shipping receipt.



For the OP,

Well you've learned a valuable lesson with this transaction.

You just need to email the customer and explain that purchasing and reselling items is in no way fraudulent. Explain that you aren't a non-profit company, that surely the customer should have known you buy the items for less money than what you charge your customers. The price on the receipt from the shipper is your cost and not his price. If he's satisfied with the item then he needs to pay the price he agreed on, if he isn't satisfied then he can return the item subject to whatever terms you originally agreed to for a return policy. You should remind him that he apparently considered it a good price until he saw what you pay for it.

As other people have stated, this is done everyday even by regular businesses. Some people just get all uptight when they see what the actual markup is on a product. Some people don't even understand that the markup isn't even a true profit because there are usually additional business and operating expenses involved.

Just deal with this guy the best you can and in the future always make sure that anything you have shipped directly to a customer does not include prices on the shipping invoice. In many instances if your supplier is a retail store that will mean choosing the gift option when you order it. The bad thing about having items shipped from a retailer is that your giving away your source everytime. Most retailers don't have any options to not use their logo, address, etc. The option bl4ck1ce gave in his reply is a good option if you don't mind handling the merchandise yourself. Part of the point in dropshipping though is to prevent having to do that. If you receive many complaints along the lines of this one, then that might be your best option though.

GreyWolf said:

No he didn't actually tell him to commit fraud.

There's a difference between selecting the "order item as a gift" option from a retailer and declaring the item as a gift on customs forms.

Most retail stores have an option to order the item as a gift if you don't want the store to include the prices on the shipping tags. "Gift" might be the name the store is using for the option, but the function of the selection is just to prevent including prices on the shipping documents. The stores gift option is not the same as declaring the item as a gift on a customs form. Selecting the option will only suppress the prices on the shipping invoice, it has no effect of avoiding any taxes or fees for him or the customer.

The customer is absolutely entitled to have a receipt, but that receipt should be provided by the seller, not the supplier (who in this instance just happens to be a retail store). If you select ship the item as a gift when you place the order, and then email the customer with a receipt from you then you've provided what is necessary. Doing that is certainly not going to be considered fraud.

On the other hand if you're shipping items internationally and put "gift" on the customs forms in order to avoid customs fees, then that can definitely be considered fraud. It's done all the time and rarely does anyone get caught for it, but it is fraud nonetheless and there is always the chance of getting caught when doing so. But that's a totally different thing than what's being suggested by having a store item shipped as a gift to avoid having prices included on the shipping receipt.

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I am not sure about the "order as a gift" option, but I was under the assumption he meant to mark the customs forms as a gift. I think I understand what you mean now. I am not big in drop shipping, so I didn't know fully what they meant. Every time I read about Ebay, I see people saying "Mark the Customs Forms as Gift".

bl4ck1ce/DamnTees: If you just meant having the DROPSHIPPER send it as a gift, and having the customs forms being legit, then I apologize. It was not clear to me.

I agree with you on the part about emailing a receipt. You do NOT have to physically mail a receipt if you have an email address collected as part of the sale transaction, which you would for any online purchase.

Can't you just include special instructions: Do not include receipt? I think probably the buyer in this case, got confused like I did. There IS a lot of fraud with dropshipping, and most dropshippers are not on the level (or so it seems). But the way GreyWolf described it is a LOT clearer than what everyone else explained.