I have had this happen. First thing is to try to understand from PayPal why the transaction was denied. Second, where is the item you sent? If you sent it via UPS or FEDEX, as the sender, you can have the package rerouted back to you. If you sent it USPS, or it's arrived already, then SOL. I do think it is generally wise to make sure you have verified payment before shipping out the item(s).
I used to buy and sell stereo equipment and had every scam under sun tried on me. Twice I had to have packages rerouted back to me. Proud of the fact that I failed to fall for most of the scams, though some were actually quite comical. My personal favorite was the 'we sent you a check for $2,000 instead of $200, could you send us a refund check of $1,800 along with the amplifier'. How stupid do they think I am LOL.