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Hmm, but what happens if the buyer then asks for a refund through eBay afterwards? I'd have to argue with eBay that I'd already done a refund and I'd rather not.
For future readers, after clicking through the "seller help" for 30 minutes I found this option: "The buyer asked to cancel the item(s) in this order" so I've done that.
Doesn’t it say in the paypal transaction ‘issue refund’
Log into paypal, not ebay