PayPal froze $47,000: A SaaS founder's 6-month nightmare
A bootstrapped founder had their entire revenue frozen when PayPal flagged "unusual activity" on their account. The real issue: mixing personal and business transactions.
Background
- User Type
- SaaS Founder
- Business Model
- B2B SaaS (project management tool)
- Structure
- Wyoming LLC, but receiving payments to personal PayPal
What Happened
Account frozen without warning. PayPal cited "unusual activity" and requested documentation. The mix of personal purchases and B2B subscription revenue made the account look suspicious.
Timeline: 6 months to partial resolution
META Analysis
Personal and business transactions mixed in same account. No clear separation between $15 coffee purchases and $500 subscription payments.
Wyoming LLC existed but wasn't connected to payment processing. Income flowed to personal account, bypassing the legal structure entirely.
Cross-border payments from EU customers without proper documentation. VAT implications unclear.
No invoices stored, no customer contracts on file. When PayPal asked for proof of business, founder had to recreate months of documentation.
Resolution
After providing LLC documents, customer contracts, and a detailed business explanation, PayPal released 80% of funds. The remaining 20% was held for 180 days as "reserve".
Key Lessons
- ✓Never mix personal and business payment accounts
- ✓Connect your legal entity to your payment processor
- ✓Keep invoices and contracts organized from day one
- ✓Document your business model clearly for potential platform reviews
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