Acquiring debt can be problematic for startups, and it isn’t in the best interests of existing business, either. If a detailed history isn’t offered, most credit card processors will decline your application.
For many people in the US, credit cards, loans, and credit lines are the way to pay for things. The average household debt for families increased by 11% over the last decade, based on Nerd Wallet’s American Household Credit Card Debt Study in 2016. The credit card debt of an average household adds up to just under $17,000. When you factor in mortgages, that number skyrockets to slightly under $140,000.
It doesn’t take much for a debtor to fall behind on payments, as personal debt can be overwhelming. When payments aren’t received, the debts are transferred to collection agencies, who then chase the debtors on behalf of creditors and financial institutions.
Collection agencies are classified as high-risk due to the high potential to receive chargebacks. TailoredPay can help businesses in the debt collection space acquire the high-risk merchant account they need.
Companies Supported in the Collection Field
Merchants inside the debt collection agency field go after commercial and personal debtors. Many agencies run as credit agents. Some purchase debt portfolios from creditors at reduced rates, which allows them to make a small profit on repaid debts.
TailoredPay approves high-risk merchant accounts for a bevy of organizations in the debt collection industry. TailoredPay provides personalized payment solutions to collection agency merchants who offer the following services:
Collateral repossession and recovery services
Bill, account, or debt collection services
Debt portfolio collection services
Credit reporting services
Delinquent account collection services
Tax or fee-based collection services
Any service not listed here can still submit an application. TailoredPay focuses on helping merchants in the debt collection space. Our processing experts will work diligently to help your business obtain a merchant account quickly.
What You’ll Need to Send With Your Collection Agency Merchant Account Application
To obtain a merchant account for your collection agency, start by completing our online application. You’ll need to send the following with your application:
A voided check or bank letter
A government-issued piece of identification, like a state-issued Driver’s License
Three months’ worth of your most recent processing statements from your previous or existing provider (if applicable)
Three months’ worth of your most recent business bank statements
Your chargeback ratio must be below 2.5%. Further, all merchants who run businesses online need to have a completely functioning and secure website.
Collection Agency Application Process
Collection agency merchants need to come across as reputable, legal companies. Underwriters determine how risky a business is by going through the application thoroughly.
Underwriters make sure that merchants run in regions and states where they are licensed. They also check to see if they’re adhering to laws like the FDCPA (Fair Debt Collection Practices Act). Further, underwriters need to understand that merchants comprehend their services and stick to a proper business model.
Because underwriters understand how risky debt collection companies can be, it is extremely important for merchants to show sufficient working capital. They must prove that their company runs as a reputable, legitimate organization with a consistent business model. First impressions are everything, particularly for collection agencies seeking a merchant account provider.
Why there are so many chargebacks in the collection industry
Chargebacks that aren’t associated with fraud are thought of as friendly fraud. Don’t be fooled – there’s nothing positive about this type of chargeback. “Friendly” chargebacks happen when customers make purchases using their own credit cards, and then afterwards, dispute the transaction to get their money back because they think they overpaid for a good or service. Credit card companies and processors aren’t concerned with the chargeback reason. They simply want the chargeback ratio to remain under 2%.
The debt collection field is susceptible to chargebacks because of customers with bad credit. People who are in debt and don’t have the money to repay it are more liable to dispute legit credit card charges.
Debtors make a lot of commotion about repaying money when there is no issue, but when an actual problem arises, it’s past the point of support from a debt collection agency. Most collection agencies don’t entertain a debtor’s reasons or follow-up on claims. Instead, they offer refunds knowing that no one enjoys repaying debts.
Why chargebacks matter to processors
In spite of stern rules that come with the collection of debt, most high-risk credit card processors won’t work with collection agencies. TailoredPay specializes in setting up businesses in the debt collection space with a merchant account. We will work with you to get your application approved within 48 hours.
Underwriters keep their eyes out for red flags, things that could negatively impact the processor and their sponsor bank. A large amount of chargebacks is a sign that a company is facing issues. Chargebacks suggest that things aren’t right with the company, probably because of poor communication, lack of clarity, bad customer service, or a combination of issues. Most merchants don’t understand how vital a chargeback mitigation program is.
As such, merchants must do what they can to make sure chargeback rates remain under 2%. For instance, a company with 200 monthly transactions and eight chargebacks would have a chargeback ratio of 4%.
Most merchants assume that they can sign-up with another processor if things go south with the first account provider. This is not always the case, because the terminated merchant has become a liability to other processors. Obtaining another merchant account after losing your first one is not easy. A large number of chargebacks and a negative account history negatively affects debt collection companies when they try to apply for a new merchant account.
Simple approaches to reducing chargebacks
Customer satisfaction polls and electronic receipts can influence things in your favor. Most chargebacks stem from customers forgetting or not identifying charges on their credit card statements. Giving customers an electronic receipt with the merchant’s billing support numbers and email addresses will lessen the chances of an account ending up in the hands of a collection agency.
Chargeback mitigation programs and customer dispute alerts, similar to the ones provided by TailoredPay, offer merchants some time to respond to a dispute and prevent chargebacks. Alerts aren’t able to catch everything, but they can reduce the chargeback ratio significantly.
TailoredPay uses Verifi’s CDRN (Cardholder Dispute Resolution Network) and Ethoca’s alert system to offer top-notch chargeback and alert prevention systems for high-risk merchants and to simplifiy the chargeback fighting process. The dispute network works with card issuers and banks, allowing merchants to resolve credit card transaction “disagreements”.
Collection agencies can learn from companies who have been around for a while. When debtors try to get in touch with their issuing banks, collection agency employees should be taught to offer them complete refunds. This will be better for your bank account than a chargeback would be.
Further, 24/7 customer service can be implemented to stop debtors from disputing credit card charges. Having a staff member available 24 hours a day usually makes customers feel better and gives merchants more credibility.
Collection agency merchant account categories
Each company is given a four-digit SIC (Standard Industrial Classification) code by their country. Codes label the business’ main purpose.
Companies that provide collection services are part of the SIC Code 7322: Adjustment and Collection Agencies, if not one of the following:
7323: Credit Reporting Services
8748: Business Consulting Services
7389: Business Services, Not Elsewhere Categorized
To see a full SIC list, consult the United States Department of Labor.
NAICS (Northern American Classification System) are used by federal statistical agencies to categorize a business. After information is acquired and examined, statistical data on similar companies and how they affect the American economy is produced.
Generally, debt recovery and collection agencies, as well as businesses that purchase charged-off or new debt, fall under NAICS code 561440: Collection Agencies, while others use the following:
541618: Other Management Consulting Services
561450: Credit Bureaus
For a full NAICS code list, check out the United States Census Bureau.
Get approved for a merchant account
Begin acquiring debt with a merchant account which is customized to your needs. Start accepting debit cards, credit cards, and checks online or by phone no matter what kind of credit you have. TailoredPay specializes in helping collection agencies obtain a merchant account at reasonable rates.
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