Senate Considers Using Private Debt Collection Agencies to Control Debt

Aug 27, 2015

A recent Government Accountability Office report states that the IRS’ uncollected tax debts rose 23% to $380 billion, while collection staff fell 23% after budget cuts. The report infers that the agency has too few controls over its tax collection process. It depends greatly on the Inventory Delivery System (IDS) which is the automated tax collection process. The IDS organizes and routes cases based on many factors like the amount of tax owed. In the last few fiscal years, the collection program has surpassed case closure goals. But since the IRS has not identified objectives for the program, the report states it is difficult to know if the program is truly effective. The GAO Report showed a few areas that lacked clearly defined documented objectives and internal control deficiencies for prioritizing and routing cases.

The report also noted that the case categorization and routing procedures are not documented. Although IRS management claims that procedures have been developed over years to optimize procedures, the GAO found that systems and decisions were not documented, which makes it difficult to determine the effectiveness of processes. In addition, the IRS doesn’t have real procedures to periodically monitor IDS, nor do they have consistent periodic evaluations. Lack of evaluations lead to out of date or deficient collection procedures will lead to unnecessary costs and missed collections.

As a result of the IRS’ money issues, the Senate has proposed a bill to raise $2.4 billion by giving the task of IRS tax collection to a group of private collection agencies. This bill was proposed and denied twice; once in the mid-90s and again in 2006. The National Treasury Employees Union, which represents IRS workers, claim that any problems with the program is to be blamed on the government’s excessive spending on commissions and administrative fees to companies than it received. The GAO report suggests the IRS improve collection controls by creating and evaluating documenting programs and control procedures. The IRS states it generally agrees with the report’s assessments.

The Senate is considering using a third party to help perform debt collection services, as debt collection can be a challenging and time consuming task. As seen by this situation with the IRS, performing collection services can be challenging, so some turn to experienced payment processors like for help.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

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Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

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A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

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