Accepted payment with Paypal. Bad idea. What now?

I’m a qualified/experience joiner and work my day job for a construction company. In my spare time I sell furniture online. I had a custom order, they wanted some wood cut to a specific size. We agreed and they paid through paypal. I dropped the wood off to a drop off point which I thought was their office or something but could just be a collection point. A few weeks later they contact and say I haven’t cut it to the right size and want a refund. I know I had cut it to the right size as I measured, but anyway I said if they tell me the incorrect part I will replace it.