Payment Processing for Debt Collections
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High-Risk Merchant account for Debt Collections
As a debt collection agency, you will likely need to find a high-risk merchant account for payment processing. This type of account allows you to take advantage of payment processing services even if your business is considered high-risk by financial institutions. It is important to have an understanding of debt collection high-risk merchant accounts, especially if you are an agency or individual dealing with payment processing.
Overview on Debt Collection Agencies
Debt collection companies are any type of company that retrieves payments on the debt that an individual or a business owes. It is incredibly common for debt collection agencies to work with companies in industries such as auto credit, mortgages, health care, financial services, and education.
There are multiple model types that a debt collection agency may choose from, all of which payment processing providers tend to consider high-risk. Some debt collection companies will simply recover collateral or provide repossession services, whereas others may also engage in credit reporting, including reporting negligent payments or reporting debtors who follow a repayment plan and remove the debt.
Why Debt Collection Agencies are Labeled as High-Risk
As with most other high-risk merchant accounts, debt collection agencies qualify as high-risk due to the frequency of chargebacks, along with other factors. Chargebacks refer to when someone pays with a credit card then later disputes the charge with the credit company to get a refund to their balance. This leaves the company the person paid out of the given amount of money.
Another high-risk component of debt collection merchant accounts is that many customers may miss payments to these accounts. The sheer volume of potential missed payments is a red flag for merchant services providers when considering partnering with debt collection agencies. These agencies then need to spend time and resources in order to recover the missed payments that were owed to banks or other creditors.
Most debt collectors set up payment plans for debtors who are unable to pay the amount due in a lump sum. By their nature, payment plans include recurring billing models which carry risks, such as the debtor forgetting about the payment and failing to make it. Or if the debtor has an automatic payment set up, they may forget and then contest the charge via requesting a chargeback or by working directly with the debt collectors.
How Being Labeled as High-Risk Affects Credit Card Processing for Collection Agencies
The requirement that debt collection agencies turn to high-risk merchants can pose quite a challenge for these companies. Some companies take advantage of high-risk businesses by charging them higher fees. Others will not even accept high-risk applications due to the threat to their steady income streams.
It is also common for high-risk payment processing to limit the number of transactions a merchant account can conduct or require them to have a very aggressive cash reserve. Some will also lock you into a long-term contract that comes with an exorbitant termination fee. We suggest agencies carefully review their agreement before signing with a high-risk merchant provider and attempt to negotiate for more favorable terms.