According to the Federal Reserve, American consumer debt in the United States hit a record $14.6 trillion in the spring of 2021. Merchant processors collections agency merchant accounts provide merchant processing solutions to assist collection agencies with their debt collection efforts.
This was a 6% increase from the previous year, totaling over $800 million–the highest growth rate in the last 10 years.
Student loan debt was the highest at 12%. It was followed by mortgage debt at 7% and personal loan debt at 6%.
The average American household owes at least $90,460 in debt and struggles to pay back. The main reasons being that they are not making enough money or what they currently make only covers their daily expenses.
When debtors fall behind on payments, a merchant processor collections agency provides merchant account services to collection agencies to help them try and retrieve the debt on behalf of a creditor or financial institution.
Why Merchant Processor Collections Agencies are Important
Collections agency merchant processing solutions are extremely important! Partnering with a merchant processor for a collection agency is a smart way to help recover monies owed. Debt collectors have the time and expertise to follow up on debtors and help creditors recover their money faster. With a high-risk merchant account for collections, these debt collectors are able to offer online payment solutions that help these debtors gradually pay off the amounts owed.
This helps a creditor save time, money and energy as well as focus on what is really important—business and customers.
With this business model, a collection agency charges nothing upfront. The deal consists of charging a specific percentage only when a debt is successfully recovered.
On average, a collector that recovers a debt charges a 15% contingency fee.
If a $20,000 debt is recovered, the debt collector is paid $3,000 and if it is a $100,000 debt recovered that is $15,000 in pocket for a job well done.
There is a huge demand for collections agency merchant processing. However, merchant accounts for collection agencies and various payment processing solutions will not assist in all cases. There are always people who keep borrowing money without any plans on paying it back in future.
Debt Collection Agency Merchant Account
For debt collectors to provide their services efficiently, they need special debt collections merchant accounts in sync with recurring billing plans, which allow debtors to pay back regularly and conveniently.
A merchant collections bank system that allows multiple payment options is also important.
Credit card payments are popular, but they should never be your only option when it comes to recovering debt.
Credit cards are tied to credit lines. People are in debt because they have maxed out their existing credit lines. If you rely only on accepting credit cards to help these debtors pay back their debts, you will be left high and dry.
Accepting all forms of payments including credit cards, debit cards, ACH, echecks and crypto solutions offer more options in terms of recovering money owed.
Debit cards offer more than credit cards because payment is taken from preexisting money and not credit facilities.
Additionally, echecks and ACH payments allow payments to be electronically removed from a debtor’s bank account. This seems to be the most effective way of recovering and processing debt payments.
All payment methods have their pros and cons. In all of this, the best thing to do is for a collector to have multiple ways of accepting payments and let the debtor decide on which option to use.
With more payment options available, a collector increases the agency’s chances of recovering more money.
Debt Collection Agencies – High Risk Merchant Processing Solutions
Acquiring banks regard merchant processors collection agencies as high risk because card payment disputes are commonplace in the industry.
Many debtors feign ignorance and use chargebacks to get collectors off their cases and delay paying back what they owe.
Credit card companies are mandated by law to reverse mostly all disputed charges in favor of the cardholder.
This is the reason why people who are neck deep in debt always jump at the opportunity to dispute card charges. They are well aware that the law is on their side.
Credit card companies do not like the idea of consumers using credit to settle outstanding debts. It is a controversy they want no part of and so prevents cardholders from using their services to offset any debt.
Applying for a Collections Agency Merchant Account
Since debt collection businesses have been deemed risky by traditional merchant service providers, the only option available for collectors are providers with a strong track record in high risk industries.
These providers offer payment processing services to corporate collection departments, debt buyers and debt collection agencies struggling to find payment solutions elsewhere.
Before applying for a debt collection merchant account, make sure you have the following documents:
- A bank letter
- Government issued identification e.g. international passport or driver’s license
- 3 months of business bank statements
- 3 months of payment processing statements from the previous provider (not applicable to new merchants)
- LLC or corporate documents (if applicable)
To stand any chance of getting approved, the chargeback ratio of a debt collection agency must be below 2.5%.
And for all collection agency merchants with an online presence, the websites must be functional and secure.
How the Debt Collector Application Process Works
When it comes to collection agencies, underwriters thoroughly go through applications to determine the level of risk.
The merchant’s credit score, credit card processing history, bank statements, website quality and even previous relationships with other processors help in determining this.
In this vein, it is important for collection agency merchants to be upfront with everything and not hide anything from the underwriting team.
Underwriters ensure that merchants are operating in areas where they are licensed.
Always confirm if the agency is on the right track by following the guidelines of the Fair Debt Collection Practices Act — the golden standard for debt collection agencies.
Applications are usually not approved if merchants do not display the appropriate policies on their website.
Negative account balances, unpaid bills, late payments and of course high chargeback rates are red flags too. Help highlight the debt collection agency’s risk levels.
During the application process, underwriters are known to cold call and send emails to gage service quality, so debt collectors should be prepared.
If calls go to voicemail, ensure there is a message that introduces the company and tells the caller when to expect a call back. The same information should be provided via autoresponders for emails.
Debt Collection Merchant Provider Requirements
- Fast approvals: 1-5 days depending on the quality of the application submitted.
- Low rates: Get in touch with multiple processors and compare rates.
- Multiple payment methods: Accept credit/debit cards and echecks/ACH quickly and easily.
- Iron-clad payment gateway: Military-type encryption that protects sensitive information from data breaches.
- Unlimited recurring billing plans: Customization of repetitive payment plans convenient for debtors.
- Quick settlement: Repayments processed and deposited within 24 hours.
- Multiple payment channels: Use of virtual terminals for email and phone payments. Accept payments online and from mobile devices.