I've been using Paypal for years now as a Freelance Illustrator (about 15 to be exact), and use it to process and receive payments from my clients. I ran into a very frustrating incident regarding a dispute with a client (now closed/resolved) for the first time recently to which I discovered that because they used the "Goods/Services" option when they initially paid, I was absolutely not covered or protected because the illustrated product I create for my clients is digital. Apparently this particular payment option does not cover digital goods, only physical/shipped items.
The client in question opened the dispute without letting me know prior or even asking me, and I was lucky I had just enough in my account to cover the sudden hold it put on the payment. From my standpoint, there was absolutely no legal grounds for the client to forcibly place the dispute because A) the product was digital, not physically shipped and B) they were updated less than a week prior on the status of their illustration and informed about the timeframe they would receive it. There was no consideration on my part, as a trusted 15-year seller, to warn me or on any part of Paypal to contest this issue.
Eventually I came to an agreement with the client to refund them half of the original price and cancel the dispute. If they had been spiteful enough, they could have easily moved to place an official claim on the dispute and I would have lost the entire amount for an illustration that was over 3/4ths of the way completed. Meaning, essentially I would have been robbed for work I was commissioned to do.
I've never had this happen to me in the fifteen years I've used Paypal, but after reading through the Help section I was extremely alarmed over the fact there is no definitive payment option to protect me from having this happen. If a client wanted to file a fraudulent dispute because they didn't like how an illustration turned out or just to get free work from me, they could and technically they could win a case because "Goods/Services" have no coverage for digital products.
How am I supposed to protect my interests and money as a freelancer if I can't even trust my source of money processing? What option am I supposed to use to keep this from happening in the future? I'm upset and confused that Paypal's system works this way, because anyone could take advantage of this loophole and potentially steal from sellers who provide digital products.
