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After I explained to these customers that that was what happens in an auction, they then claimed they had not received the items
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If they have recieved the item via recorded mail then you have the chance to get the banned from paypal for fraud, if they do it even once and claim that you havent sent it to them when you have a piece of paper saying they have then not only will paypal return your money, thats a strike against them on eBay and Paypal.
The reason they give the money to the customer and not keep it for the business is simple, business has insurance and if the business knows the customer is lieing then they will push to get their money back