Posted by NationalACH on May 21, 2020
Debt Collection Merchant Accounts

Are you a debt collection agency accepting payments from debtors?  There are 3 main ways debt collection merchants process payments. 

  • Debit Cards (Americans Love Cards)
  • ACH Payments (Lowest Cost / High Reliability)
  • EChecks (Great for Collection Agencies with High Chargebacks or Returns))

Each payment option lets you easily accept payments online, by phone, mail, and through mobile devices.  Many debt collection agencies offer all three payment methods.  The more ways debtors can pay you, the more money you collect.

Electronic processing streamlines collections and improves cash by automating payments. Recurring billing plans are a standard feature on all accounts.  Recurring payments make it convenient for debtors to pay you on a regular basis.

This article gives you the pros and cons of each payment method.

Debit Card Debt Collection Merchant Accounts

These days almost everyone has a debit card associated with their bank account.  Even debtors without credit cards have debit cards that can be used to pay off debts.

In fact, debit cards are used twice as much as credit cards by all Americans.  Because of the wide embrace of debit cards, collection agencies absolutely need debt card collection merchant accounts.

While debit cards are important, there are some downsides to the payment method.

Collection agencies often offer recurring payment plans to make debt payments more affordable.  Still, every year more than 20% of cards are reissued due to lost or stolen cards, expired dates, security breaches, or bank mergers. 

Each time a card is reissued, updated card information is required to keep recurring payments flowing.  There are tools that can be used to automatically update card data but not all processors offer the tool.  And, even with a robust card updater service, not all cards can be updated. 

If a card cannot be updated, you need to contact the debtor to obtain the new card data.  This takes time & effort.  And you still may not be able to obtain the updated information if the debtor does not respond. 

A debtor has 2 days to revoke a debit transaction with the issuing bank.  Debit card transactions can still be charged back, although it more difficult than charging back a credit card transaction.  Additionally, debit cards payments can be declined if there is not enough money in the bank account to cover a payment.

ACH Payments for Debt Collection Merchants

ACH payment processing debits the debtor’s bank account and settles the funds to the collection agency’s business bank account.

ACH is the lowest cost payment method for debt collection agencies.  And, although it is still not a “real-time” payment, same day ACH speeds up processing timeframes, 

Same day ACH is helpful to prevent returns for non-sufficient funds.  Still, since ACH is not real time transactions can still return.  For this reason, settlements of funds to your bank account will take 4 business days.

A big benefit of debiting bank accounts via ACH rather than with debit cards is that bank accounts rarely change.  Therefore, there is seldom a need to update payment information. Recurring payments continue uninterrupted, ensuring continuity of cash flow.

The main disadvantage of ACH for collection agency merchants is that revokes (aka “chargebacks”) and returns must be very low to keep the ACH merchant account in good standing.  Revokes must be under 0.5% and returns under 15%. 

These low ratios can be quite challenging for debt collection merchants due to the nature of the business and the demographics of the debtors.   For this reason, debt collection agencies benefit from adding echecks to their payment options.

How Debt Collection Merchants Benefit from Echecks

Echecks and ACH are similar.  Both payment methods electronically debit funds from debtors’ bank accounts. The user experience is the same. The debtor provides routing & account numbers for the bank account from which debt payments are debited on a one-time or recurring basis.  

Echecks are an excellent alternative to ACH if you have higher returns or revokes than are permitted by the ACH network.  Echecks are cleared through the processor’s account.  Cleared funds settle to the debt collection merchant’s bank account, similar to the way card transactions are settled.

Since the transactions are not sent through the ACH network, debt collection merchants have far greater flexibility on revokes & returns with echecks.   Some debt collection merchants use echecks for the first few recurring payments to “vet” the debtor.

Once the debt collection agency verifies the debtor will not revoke a transaction and has a good payment history without returned items, the debtor can be transferred to ACH by the debt collection agency. 

Because the echeck processor assumes liability for revokes & returns, rates are higher than ACH processing.  Still, echecks are extremely helpful for protecting your debit card & ACH accounts since revokes & returns can be significantly higher than allowed by the other payment methods.   

For more information on debt collection agency merchant accounts, contact