Collecting overdue debts and payments on behalf of your clients is not an easy feat—first, considering that most lenders turn to your after failing in all their efforts to make the borrower repay.
But the job is not the only challenge for entrepreneurs serving in this space. A collections agency must worry about other critical stuff, like securing a merchant account. This account matters because it helps the agency accept borrower payments made via credit cards.
Getting a collections credit card processing account is a challenge because of the tricky arrangement of the debt collection business.
Many regular payment processors will turn down your request because the banks they work with have one or two worries about your collections company.
Why Banks Avoid Collection Agencies
Industry reputation is a major obstacle for collection agencies. The public notion that debt collecting companies are ruthless and dishonest in their activities makes your business a no-go-zone for many underwriters.
Dealing with tricky borrowers also exposes merchants to chargebacks or reverse charges. These happen when phony borrowers pay via their credit cards and later call their bank to dispute the payment.
Though a chargeback’s liability falls on the collection agency, banks like to avoid businesses in sectors with a history of high chargeback ratios.
Besides a tainted reputation and reverse charges, debt collectors are highly controlled by federal regulations like the CFPB and FDCPA. Collection agencies must strive to keep up with the still-changing rules and regulations of the industry.
Finally, banks and payment providers like to consider a business’s stability before accepting a merchant account request. Collection companies are known to suffer high staff turnover triggered mainly by work-related stress and lack of morale.
How to get a Collections Credit Card Processing Account
Collection agencies stand a chance with high risk merchant account providers.
Entrepreneurs must consider payment providers who work with collection agencies. Past experiences with your industry matters because such partners understand your problems and special needs better.
Though requirements vary by provider, many payment services will ask for the following;
Business’s EIN Number
3 Months of the latest Bank Statements
Voided Business Check
An authentic Driver’s License
Business License or Company Articles of Organization
For business already processing, a chargeback ratio below 1 percent is almost a must-have.
The application and underwriting process should last a few days. Thanks to digital underwriting and onboarding, your agency could can start enjoy processing approval in a day or two
How to Increase the Chances of Approval
Reputation is priority number one. Be ready to prove that you’re ready to run or run a perfectly legal business. Research and fall in line with all laws and regulations.
Below are other ways to ensure a bank accepts your collection agency merchant account request.
Get a valid state license
Build a Visa/MasterCard compliant Website
Create a Solid business plan
Work on your personal credit score
You could also show your past credit card processing background, if applicable.
Collection businesses must prepare adequately before applying for a merchant account. Gather all the credentials and fall in line with all regulations to increase the chances of acceptance.