Posted by NationalACH on May 28, 2017
Collection Merchant Accounts

The collection industry has been growing along with debt for unpaid purchases, bills, services, and other debts. There are over 1 billion credit cards open in the U.S. alone, and each American household owes an average of about $135,000 in debt. Factor in the complexity of the ever-growing internet marketplace, and it’s no wonder that consumers slip through the cracks and neglect to pay for provided goods and services.

Despite a notoriously bad reputation, debt collectors work hard to get companies money, and are often honest, legitimate agencies. A reliable and timely merchant account will help lower the risks inherent to the collection industry, but since collections accounts are high-risk, it is difficult for newer and smaller agencies to get approval for merchant accounts that ensure timely and reliable payment processing.

Why is debt collection a high risk business?

Payment processing companies often deny applications for merchant accounts from collection agencies, especially smaller, or less established agencies because of unstable cash flow and poor reputation. A lot of profit stands to be made from pursuing debts. Unfortunately, a variety of factors make it difficult to collect payment successfully and consistently, in turn destabilizing cash flow and harming your agency’s reputation. The following are some of the more common risks faced by collection agencies and how to decrease them.

The risk: Debtors can’t afford their debt

Many consumers simply have other priorities for their paychecks than paying off debt collectors, especially for amounts owed years prior. They know that they need to pay off debts eventually, but that their credit score may have already been damaged, regardless of whether they now close out their account with the creditor.

What to do about it: Make it easier to pay and inconvenient not to pay

If you don’t offer convenient ways for debtors to pay, they won’t try very hard to comply with requests for payment—especially those who owe money on delinquent accounts. One of the most likely ways to deter someone from paying their debt as soon as possible is not offering several clear options for payment. These options should include

  • ACH / echecks
  • Debit card payments
  • Accept payments online on your website
  • Accept payments by phone

Accepting payments through various formats and methods will make it more difficult for debtors to delay paying your agency and thus destabilizing your agency’s cash flow. 

Keep in mind that many debtors cannot afford their payments, and may not have room on their  cards to make payments on their debts. E-checks are a more convenient payment option that can be used by a wider range of consumers to pay off debts. This improves the consumer’s credit score, and profits your agency. The right merchant account will offer several payment processing options, and should also offer verification services to prevent fraudulent or otherwise unreliable payments.

Read more about e-checks for more reliable payment.

The risk: Chargebacks

Cardholders can easily have their bank withdraw money from yours without permission if the cardholder claims he or she did not authorize a payment. This happens for a number of reasons, some legitimate and some not, but the bottom line is that it hurts your business to have money taken back out of your bank account, after which, you are forced to continue attempting to collect the debt.

This also poses a problem for the employees of collection agencies, many of whom are paid based on how fast they can get consumers to pay their amount owed. Bank account information is more reliable than card information, improving financial stability for your employees and lowering the turnover rate at your company.

What to do about it: Use e-checks, make it inconvenient to dispute charges

Consumers are protected by the ability to claim identity theft or otherwise unauthorized payments. It’s more difficult to reclaim money paid with an e-check than with debit or credit card information. Collecting payment through bank account information also reduces the need to update payment information, and prevents erratic cash flow back out of your company’s account due to chargebacks.

Read more about how to handle and prevent chargebacks.

The risk: Debt collection agencies have a poor reputation

Not only are collection agencies known among consumers for incessant phone calls, angry letters and poor customer service, but those in the collection industry are regarded as high-risk accounts, unless the company has a long, well-established history.

What to do about it: Open the right merchant account, verify debts and operate honestly

With a reliable merchant account, you should be able to verify accounts and payments. This prevents back-and-forth discussion with creditors, consumers and credit bureaus to settle accounts and collect money owed. ACH payments or e-checks also decrease time spent having to contact and re-contact consumers to successfully transfer payment. The less time calling or writing debtors, the less likely you are to be perceived as aggressive and more likely you are to be paid.

Some collection agencies purchase debts that may have been acquired previously by other collectors, and attempt to collect the debt without verifying its legitimacy. To encourage a positive reputation for your agency, don’t purchase debt that hasn’t been verified. “Zombie debt,” though cheap to purchase from creditors or other collectors, is easily disputed, and leads to negative perceptions of your agency and limited cooperation of debtors.

Now what?

If you’ve decided that you do want to pursue better ways to ensure financial stability and higher collection rates, find the right merchant account to help lower the risks associated with the collections industry. Take advantage of different payment options to make it easier and more convenient to pay, and inconvenient not to pay. Bank account information is more reliable for your business than credit card information, and your merchant account provider should offer services against fraudulent payments.