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It is difficult for collection agencies to get an approval for a merchant account, no matter whether it’s business to customer or business to business. It’s the delicate nature of their transactions that flags collection agencies as high-risk by many payment processors and banks. The only way these agencies can process payments is by getting a collection agency merchant account for debt collections.
Why Are Collection Agencies Considered High Risk?
Collection agencies are considered high-risk due to several reasons. One primary reason is the frequency of chargebacks. Chargebacks refer to when a customer makes a payment with a card and then asks for a refund by disputing the charge with the card issuing company.
Another reason why collection agencies are considered high-risk is because many debtors often miss payments even after an agreement to pay what they owe has been reached. The huge number of missed payments is a red flag for payment processors.
What Other Factors Work Against Collection Agencies?
Another reason why debt collection companies are flagged as high-risk is due to the unconventional methods some of them use to recover debts. Some agencies are known to hire private investigators to dig into people’s privacy or harass them at their workplace. It is a reputational risk that makes collection agencies a high-risk industry.
Low stability is also a key factor why many payment processors and banks consider collection agencies high-risk. Low morale and job-related stress can cause high employee turnover in collection agencies.
Which Merchant Account Service Providers Accept Debt Collection Agencies?
Most standard payment processors and banks refuse to approve high-risk businesses like collection agencies. However, there are others that understand that such companies are run by honest and accountable individuals, and they provide a valuable service. The high-risk merchant account providers accept collection agencies as well as other similar businesses and provide them the solutions they need to accept and process credit and debit card payments.
How to Get a Collection Agency Merchant Account?
If you want to get a collection agency merchant account, then it is recommended that you find a high-risk merchant account provider that is affordable and reliable. Before you choose a provider, be sure to consider all options carefully.
Since it’s not easy to open a high-risk merchant account, some merchant account providers charge sky-high fees to exploit the situation. They do this because they know that collection agencies are desperate for their services. It is recommended that you choose a high-risk payment processor that has experience working with collection agencies. This works well to your advantage of finding a way to easily accept card payments.
Secondly, only do business with a high-risk merchant account provider that values you as a customer. Even if they charge high fees, it is likely that they will give you discounts and special offers down the road after you establish yourself as a loyal customer.
What’s Needed to Apply for a Collection Agency Merchant Account?
There are unique application requirements for high-risk merchant accounts. Lots of paperwork is required. The approval time is also longer as compared to low-risk businesses. A high-risk payment processor wants all the information about your business’s financial state. It is recommended that you be prepared to produce the following information to speed up the application process:
- Phone Number
- Personal Address
- Business Address
- Driver’s License or Passport
- Tax Identification Number
- Email Address
For Business Documents:
- IRS Form SS-4 to verify your EIN
- Copy of Business License
- Copy of Articles of Incorporation
For Bank Documents:
- Letter from bank displaying business name, routing number, account number, and business address.
- Bank letter showing your account’s current state.
- 3 months of your most recent bank account statements.
For Financial Documents:
- Complete financial statement with balance sheet.
- 2 years of business or personal tax returns.
If your business has processed card payments in the past, then make sure you have:
- 3-6 months of your most recent ACH and credit card processing statements.
- Profit and loss statement.
What Do Underwriters Assess When Reviewing a Merchant Account Application?
Risk is the primary aspect underwriters assess when approving a merchant account. To improve your chances of getting approved, it is important that you demonstrate that your business is reputable, and it adheres to all applicable rules and regulations. Having a reasonable credit score also helps. Following are some things underwriters look for when approving a merchant account:
- Experience with collection industry.
- Solid business model.
- Prior processing history (if available).
- Proper state licensure (if applicable)
- Personal credit score of the business owner.
- Website compliancy according to Visa/Mastercard regulations.
Before submitting your application, it is recommended that you take care of any outstanding matters. Working with a knowledgeable and reputable merchant account provider also helps.
What Are the Standard Merchant Fees for Collection Agencies?
Merchant account fee is charged on monthly or yearly basis. This includes monthly gateway fees, per transaction charges, discount rates, and monthly minimum account fees. You may also be charged additional fees depending on the payment processing that is issuing your high-risk collection agency merchant account.
How is a Collection Agency Merchant Account Classified?
All merchants that accept credit and debit card payments are classified via 4-digit Merchant Category Code (MCC). The primary purpose of MCC is to identify and classify merchants according to the services or goods they offer. Collection Agency Merchant Accounts are classified with MCC 8099 for collecting medical past due receivable, MCC 8931 for professional bookkeeping services, and MCC 6051 for non-financial institutions. To ensure that there are no limitations to your account’s processing capabilities, don’t forget to discuss all the available options with your high-risk merchant account provider.
Closing Thoughts
As a collection agency, finding the right high risk merchant services account can be very beneficial for you and your customer in terms of making bill payments. When it comes to obtaining collection agency merchant account, you should make sure that you find a reliable merchant account service provider that can offer seamless experience for all involved.
About The Author
Mark Sands, the co-founder of High Risk Merchant Account LLC, is an authoritative expert in the high risk merchant account and high risk ach processing space’s. Mark has decades of experience in the payment industry & enjoys writing on entrepreneurial-related topics.
