What Legal Agreements Do I Need For My eBay Dropshipping Business?

Starting an eBay dropshipping business can be a complex process and there are several legal considerations to think about before you set up your eBay business. 

To help manage and mitigate any risks to your business and its reputation, you must have the right legal documentation in place so that you, your suppliers, and your customers are all on the same page.

This article explains: 

• what eBay dropshipping is; 
• whether eBay allows dropshipping; 
• what legal agreements you will need for your eBay dropshipping business; and
• what Is a dropshipping agreement and what should be included in a dropshipping agreement.

Article Overview
What Is eBay Dropshipping?
Does eBay Allow Dropshipping?
What Legal Agreements Do I Need For My eBay Dropshipping Business?
What Is a Dropshipping Agreement And What Should Be Included In A Dropshipping Agreement?
Final Thoughts

What Is eBay Dropshipping?

eBay dropshipping is a popular e-commerce business model that allows entrepreneurs to sell products without holding any physical inventory. Sellers can list products on their eBay store, but instead of keeping and storing physical stock themselves, they partner with suppliers or wholesalers who directly ship the items to customers on their behalf.

In simple terms, a customer will purchase through eBay, and the seller then forwards the order and shipping details to their supplier, who then handles the packing and shipping process. The seller essentially acts as the middleman, earning a profit that equates to the difference between the price someone pays for the product and the price at which they buy the product from their supplier (less any applicable fees and taxes). 

One of the main attractions of eBay dropshipping is its low barrier to entry. That is, it doesn’t require a significant upfront investment in inventory. By using dropshipping as a business model, sellers can offer a wide range of products without the need to store them, making it an appealing option for anyone looking to start an online business with very little capital outlay.

While this all sounds great in theory, achieving success through eBay dropshipping hinges on effective communication and coordination with suppliers, ensuring timely deliveries, and maintaining product quality. It’s essential for sellers to partner with reliable suppliers and to be transparent with customers about the shipping times, to avoid any issues.

Does eBay Allow Dropshipping?

Yes, eBay allows dropshipping as a selling method on its platform in certain circumstances. 

eBay dropshipping is allowed if sellers have pre-purchased the stock and adhere to the guidelines outlined in eBay’s Third-party fulfillment policy. However, listing an item on eBay and then purchasing it from another retailer or marketplace, which directly ships to the customer, is strictly prohibited. 

It’s crucial to understand and comply with eBay’s dropshipping policies to ensure a positive selling experience and avoid potential account restrictions or penalties.

It is also important to understand that even if you sell products on eBay using the dropshipping business model, you (as the seller) remain accountable for ensuring the secure delivery of the item within the stated timeframe and ensuring overall customer satisfaction. 

To ensure sellers and their suppliers are on the same page when it comes to product delivery and customer service expectations, robust legal agreements must be in place so that everyone understands their rights and obligations under any proposed drop shipping arrangement.

What Legal Agreements Do I Need For My eBay Dropshipping Business?

When running a dropshipping business the most important legal agreements you should have in place are your terms and conditions of sale which should be based on the eBay Business Policies and a dropshipping agreement with your suppliers.

Terms and Conditions of Sale (eBay Business Policies)

When you create a listing for a product that you wish to sell, you will need to include in the listing your terms and conditions of sale.

These terms and conditions are the contract between you (as a seller) and your customer.

It is important to note that these terms and conditions will need to meet the requirements as set out in the eBay Business Policies.

Broadly, your terms and conditions of sale should include payments, shipping and handling, communications, refunds, and returns.

When preparing the terms and conditions of sale for your listing, it is important to take into account the dropshipping arrangements you have with your suppliers so that there are no surprises for your customers.

Dropshipping Agreement

A drop shipping agreement is a contractual arrangement between a seller (i.e. the drop shipper) and a supplier or wholesaler. Broadly, it outlines the terms and conditions of their business relationship when employing the dropshipping model. 

A drop shipping agreement establishes clear expectations for both parties, ensuring a smooth and mutually beneficial partnership. 

By defining roles and responsibilities, the dropshipping agreement helps prevent misunderstandings and disputes, leading to more efficient order fulfillment and customer satisfaction.

We cover drop shipping agreements in more detail below.

What Is a Dropshipping Agreement And What Should Be Included In A Dropshipping Agreement?

As mentioned above, a dropshipping agreement is a legally binding contract between a drop shipper and any suppliers/wholesalers which sets out the key terms and conditions of the business arrangement.

A drop shipping agreement should include terms relating to the ordering and payment process, product details, pricing, exclusivity, shipping and delivery standards, title to goods and passing of risk, returns, termination, and dispute resolution.

Each of these terms is discussed in further detail below.

Order and Payment Process

Your drop shipping agreement should outline the order and payment procedures. This includes detailing the steps you need to take when placing orders, the accepted payment methods, and any specific timelines for payments. Clarity on these aspects will ensure a streamlined ordering process for both you and your supplier.

Product Details

The product details section is crucial as it sets the expectations for product quality. Your drop shipping agreement should include comprehensive product descriptions, specifications, measurements, images, and any other necessary information about the products you are sourcing. 

Pricing

A clearly defined pricing structure must be included in the agreement. It should clearly define the wholesale prices for you as the drop shipper and, if required by your supplier, the retail prices you’ll set. Any guidelines for price adjustments or discounts should be established in the agreement to avoid any disputes down the track.

Exclusivity

If you have agreed to have some form of exclusivity with your supplier (whether it be product, geographic, or otherwise), the terms and duration of the exclusivity arrangement must be clearly defined in the agreement. 

Shipping and Delivery Standards

Because you are not fulfilling orders yourself, transparency in shipping and delivery standards is key to ensuring your customers are satisfied with your service. Your agreement should cover shipping methods, estimated delivery times, packaging requirements, and any special handling instructions. 

Title to Goods and Passing of Risk

Understanding when the title of goods transfers and when the risk shifts to you is crucial for handling potential issues during shipping. Your agreement should specify these points to ensure a smooth and secure delivery process. 

Refunds and Returns

The returns process is an essential aspect of any business but is especially important when operating an eBay dropshipping business. You must include details on obtaining a return authorization, the imposition of any restocking fees, and who covers return shipping costs. This will ensure a streamlined returns process for you, your suppliers, and most importantly, your customers.

Termination

Although we would like to think that terminating an agreement is an unlikely scenario, defining conditions of termination is crucial for a dropshipping agreement. Outlining how either party can terminate the agreement and any required notice periods will help both sides plan for any unforeseen circumstances.

Dispute Resolution

A well-defined dispute resolution procedure promotes a positive business relationship between you and your suppliers. Your agreement should outline the procedures for resolving disputes fairly, whether through mediation, arbitration, or other agreed-upon methods. In most cases, the best thing to do is start a conversation with the other party to resolve the dispute before taking further legal action.

Final Thoughts

If you are thinking about starting an eBay dropshipping business, you must have the correct legal agreements in place so that each party understands their obligations under the dropshipping arrangement.

Free template agreements are readily available online today and it can be tempting to prepare your own legal agreements to save a few dollars on lawyers fees. 

While you can do it yourself, it can be tricky to get the wording of your legal agreements right, so it is often worthwhile engaging an experienced lawyer to help you draft them.

Without properly drafted legal documentation, you can expose your eBay dropshipping business to unnecessary risks so it’s always best to get these documents in place early on.