In the modern world, more business is being done online and fewer customers are carrying cash. Companies are recognizing the importance of offering additional, flexible and, preferably, paperless payment options. And collection agencies are no exception.
With consumers using a credit card for nearly one-quarter of transactions, collections credit card processing is a good decision for all parties. It is in both the agency’s and the customer’s best interests to make payment as fast, simple and convenient as possible to more quickly and easily settle a debt. After all, if a collections company can’t collect payments it won’t remain a company for very long.
Unfortunately, while credit card processing makes sense from a business perspective for collection agencies, because they operate in what is considered a high-risk industry, securing a merchant account can be a challenge. Many traditional financial institutions are unwilling to underwrite debt collection agencies, so these companies need to find a payment solutions provider with knowledge and experience working in high-risk sectors to obtain a merchant account.
Why you need a merchant account
Held directly with a bank, this particular type of account enables a business to accept credit and debit cards for payments. A merchant account authenticates card information, including verifying the cardholder and, assuming there are no issues, approves the payment. It holds the money in the merchant account, from which the funds can then be withdrawn and deposited in a company’s bank account.
For credit card processing, payment providers like PayPal may be appropriate for some companies, but those solutions don’t work for high-risk merchants, such as collection agencies. If they detect anything suspicious, they could freeze your merchant account and jeopardize your company’s ability to collect payments and stay in business.
The biggest issue for collection agencies comes from chargebacks, or the return of money to a payer. All companies deal with chargebacks, but they are much more common in industries such as collection agencies, CBD chains and Native American businesses, which can be considered high-risk. A chargeback could occur because the cardholder disputes the payment, it was made fraudulently or there was a transaction error, like an expired card.
A chargeback results in the rejection of a payment, meaning the money is refunded from the company’s merchant account unless and until the transaction is deemed legitimate. A customer can dispute a payment months after it was made, and it’s up to the merchant to prove the transaction was not fraudulent, which can take a lot of time and effort.
Collection agencies often handle large transactions, so a chargeback can be a big hit for both the company and the bank providing the merchant services. Therefore, many financial institutions simply won’t do business with debt collectors, and the latter must look elsewhere for merchant account solutions.
High-risk merchant accounts
Traditional merchant accounts are not suitable for high-risk companies, but some specialist merchant services providers will work with collection agencies. High-risk lenders that have experience and an understanding of the sector won’t have reservations about partnering with debt collectors and are unlikely to remove their credit card processing services.
There are obvious operational advantages to using a provider that specializes in high-risk merchant services, but the main downside is they typically charge higher fees. Because they are offering valuable credit card processing services in an ostensibly precarious industry, these merchant accounts cost more.
Some unscrupulous lenders target high-risk merchants and exploit them with sky-high prices, knowing these businesses are desperate to take credit cards and they cannot function successfully without processing services. It’s crucial you explore your provider options to find a lender that is ethical, effective and experienced, while also delivering excellent customer service and less expensive payment solutions.
What you want in a merchant account
Even among high-risk payment providers, different lenders have different specialties. Collection agencies should try to find one that already works with other debt collectors because it will have more expertise in the industry and better understand the unique realities of the business. With this experience it will be less likely to withdraw your credit card processing services.
If possible, try to avoid lenders that lock you into a long contract with a harsh price structure. Of course, lower fees are important, but don’t discount customer support. Chargebacks and refunds are not unusual, so you’ll want to find a cooperative partner that is familiar with, accommodating of and able to resolve these issues. Even if they charge more, specialist merchant account providers that have good customer service may produce cost savings for you down the road.
FLEX Payment Solutions can help
The more ways a collection agency can obtain payments from its debtors, and the faster and easier those transactions are, the better for everyone involved. Finding a credit card processor is fairly straightforward for most companies, but it’s not as easy for businesses labeled high-risk, CBD shops, tribal lenders and collection agencies.
Fortunately, there are providers willing and able to help. With a unique regulatory background and experience in high-risk industries, FLEX Payment Solutions offers credit card processing that integrates simply with your system, full transparency on fees and 100% compliance. Teaming with IVR Technology Group, we also provide pay-by-phone voice and text payment options.Our merchant services are available to any legal business types, including consumer lenders and collection agencies, and we promise superb, round-the-clock customer service. We strive to deliver our clients the custom processing solutions necessary to operate efficiently, helping you save money and grow your company.