A clear guide to obtaining a collection agency business account

Undertaking the debt collection process can be complicated for newcomers and is generally not favorable for start-ups. If a complete history is not provided, many credit processing providers will reject you.

For most Americans, loans, credit cards, and lines of credit are the way most families pay for their lifestyle. In fact, overall household debt for the average family has skyrocketed 11% over the past 10 years, according to the 2016 study of American household credit card debt by Nerd Wallet. The average household with credit card debt has balances that total $ 16,883, and the average household with any type of debt, including mortgages, owes $ 137,063.

With these types of figures, it is easy for any household to miss some payments and be overwhelmed by debt. When people stop paying, unpaid debts are sent to collection agencies, which go after debtors to get the money back from banks and creditors.

Unfortunately, many traditional financial institutions look down on collection agencies because they consider them high-risk merchants. Due to the nature of their business and the high volume of chargebacks these businesses accumulate, banks often deny them business accounts. When a business is declined and needs to process credit card payments, it can turn to TowersPay for a collection agency business account.

In 24 and 48 hours, TowersPay, a credit card processor, can approve business accounts for collection agencies. TowersPay also offers return management tools, payment gateways, and fraud filters. To get started on the path to accepting credit card transactions, apply for a simple and streamlined TowersPay online application today.

Businesses served within the collection industry

Traders within the debt collection agency industry include companies that pursue debt payments from individuals and businesses. Most agencies operate as agents for creditors, while others buy portfolios of debt from creditors at deep discounts and then pursue outstanding balances for their own gain.

TowersPay approves business accounts for a large number of companies in the debt collection industry. TowersPay offers custom payment solutions to collection agency merchants that offer these services:

  • Collection services for accounts, invoices, or debts
  • Collateral and liens recovery services
  • Credit reporting services
  • Debt portfolio collection services
  • Collection services for delinquent accounts
  • Commission or contract tax collection services

Merchants who do not see their services on this list and need help processing payments will still need to apply online. High-risk merchants are TowersPay’s specialty and the company’s experts will strive to help physical and online merchants of all sizes succeed. Start the process by applying for a collection agency business account now.

What is needed to apply for a collection agency business account?

To obtain a collection agency business account, businesses should start by filling out the quick TowersPay online application. Along with the application, merchants will have to submit the following items:

  • Valid government-issued identification, such as a state-issued driver’s license
  • A bank letter or a preprinted voided check
  • 3 months of the most recent bank statements
  • 3 months of the most recent processing statements, if applicable
  • An SSN (social security number) or EIN (business identification number)
  • Chargeback rates must be less than 2%.

Also, any merchant operating online must have a secure and fully functioning website.

Although approval is not guaranteed, TowersPay promises a fast and secure application process. Merchants can be approved in as little as 24 hours.

What subscribers look for during the application process

Collection agency merchants should appear to be reputable and legal businesses when their requests are reviewed by processors and underwriters. Subscribers assess risk, so they scrutinize requests for anything that looks suspicious and may put a financial burden on processors.

Underwriters want to ensure that merchants not only operate in the states and regions where they are licensed but comply with laws, such as the Fair Debt Collection Practices Act (FDCPA). Additionally, subscribers want to know that merchants understand their services and follow a good business model.

A merchant’s credit scores, credit card processing history, bank statements, website, and the fact that the business has ever been terminated by another processor determine risk. Requests are also negatively affected if a merchant’s website does not have privacy and refund policies or is lacking in important information. Negative bank account balances, unpaid bills, and late payments, as well as a history of high chargeback rates, are also factors that increase a merchant’s risk.

To increase the chances of approval, merchants must satisfy outstanding bills and debts, have a substantial sum of money in the bank, and have a business stakeholder with the best credit history apply for the business account before applying to a subscriber. Anything that looks or is questionable should be addressed prior to subscriber review.

Since underwriters already know that debt collection businesses are risky financial endeavors for processors, it is best if a merchant can demonstrate that they have the capital and that they operate as a legitimate, reputable company with a stable business model. Merchants who take the time to follow these steps are more likely to be approved for accounts with no limitations, such as a lower rolling reserve or caps on higher processing volumes. The first impression is important, especially when it comes to obtaining a collection agency business account.

Why Charge Merchants Are Prone To Overcharge Chargebacks

Any chargeback that is not the result of fraud is considered friendly fraud. However, this fraud is not at all pleasant. Friendly fraud or chargebacks occur when customers make purchases online with their own credit cards and then contact the issuing bank and request a chargeback after receiving the purchased services. These types of “friendly” chargebacks can be for debtors to get refunds they do not deserve or believe they were overcharged for services. However, credit card processors and credit card companies don’t care about the reason for chargebacks. Quite simply, what they are concerned about is that the chargeback rates remain below 2%.

The debt collection industry is vulnerable because of its clientele – people who already have bad credit. Those who already owe a lot of money and probably don’t have a lot of cash on hand are more likely to dispute valid credit card charges. This is done to maintain your personal cash levels.

Debt collection is a bit like “The Boy Who Cried, the Wolf.” Debtors complain so much about returning funds when they really have no excuses for their alarms that when they have legitimate problems, many debt collection agencies don’t want to hear from them. Many cashiers don’t listen to or thoroughly investigate valid claims or are quick to return because they know that everyone hates returning funds.

Chargebacks and why they matter to processors

Despite the strict regulations surrounding debt collection, many high-risk credit card processors do not want to take a chance and approve a collection agency’s business account. Those processors, like TowersPay, monitor them very closely.

Processors and their subscribers are watching closely for signs that merchants are a risk to them and their sponsoring banks. Excess chargebacks are the clearest signs that businesses are in trouble or will be soon. Chargebacks indicate something is wrong with the business, likely due to a lack of communication, transparency, customer service, or a combination of all of these. Many merchants also don’t recognize the importance of chargeback mitigation programs.

Therefore, merchants should take all possible measures to ensure that chargeback rates are kept below 2%. This means that a business that has 200 transactions per month and eight chargebacks has a chargeback rate of 4%.

When merchants have an excessive rate of returns, credit card processors face financial penalties. Credit card companies, such as MasterCard or Visa, are fined thousands of dollars each time a company exceeds a 2% return rate.

When this occurs, merchants are no longer profitable enough for credit card processors, leading them to cancel high-risk merchant accounts with chargeback ratios greater than 3%.

Many merchants assume that if they lose a merchant account, they will simply apply for a new one elsewhere. It’s not that easy because that merchant just increased their risk to processors. Getting a second merchant account after the first is closed is very difficult. Excessive chargebacks and canceled accounts in the past negatively affect debt collection companies when they apply for business accounts.

Simple ways to reduce chargebacks

Electronic receipts and a customer satisfaction survey can make the difference between a satisfied customer and a chargeback. Many chargebacks are due to customers not remembering or not recognizing transactions on their credit card statements. Sending an electronic receipt with the merchant’s contact information, such as email and billing support phone number, will put collection agency services back on the minds of your customers.

Another helpful strategy is to send an email with a customer satisfaction survey immediately after purchasing the service or sometime before customers receive their credit card statements. Unfortunately, the survey results will likely not be favorable due to the nature of the services. However, it gives the merchant another chance to remind customers of the services. Also, it’s a good idea to email an invoice about 48 hours in advance of any monthly recurring billing charges.

Customer dispute alerts and chargeback mitigation programs, such as the one offered by TowersPay, also give merchants a few extra days to determine whether a full refund is appropriate. Issuing a refund can avoid a chargeback. Alerts don’t detect everything, but they certainly detect enough for a merchant to go from a ratio of 3% or 4% to a rate of return of 2%.

TowersPay has partnered with Verifi and its new Cardholder Dispute Resolution Network (CDRN) and Ethoca’s alert system, to offer a superior alert and chargeback prevention system for high-risk merchants such as collection agencies, which makes it easier to fight chargebacks. The dispute network operates with banks and card issuers, allowing merchants to resolve disputes over credit card transactions. Up to 25% of a merchant’s chargeback rate can be cut by using an alert system, which allows merchants to participate directly in the dispute resolution process.

Electronic signatures are a quick and easy way to get customers to show that they accept the services and their conditions. A firm forces the client and the debtor to review all the necessary paperwork related to the services. This will ensure that both parties fully understand the services. Additionally, the formality of signing a document often makes it more difficult for a customer to forget about services and request a chargeback. If a customer tries to dispute a credit card transaction, merchants can use electronic signatures to prove that the customer accepted the services.

Collection agencies should also follow the example of larger, more established companies. When debtors threaten to contact their issuing banks, the collection agency staff should be trained to repay them in full, as larger companies do. This will be much more profitable than a chargeback.

In addition, 24-hour customer service can be instrumental in preventing debtors from challenging credit card transactions. Having a representative available all day and all night often alleviate customer concerns and adds credibility to merchants.

Categories of commercial accounts of collection agencies

The United States and other countries, including the United Kingdom, assign four-digit Standard Industrial Classification (SIC) codes to all business establishments. The codes identify the main purpose of the companies.

Companies that offer collection services are usually included in the SIC 7322 code: Adjustment and Collection Agencies. Merchants also enter these other SIC codes

  • 8748: Business Consulting Services
  • 7323: Credit Reporting Services
  • 7389: Business Services, Not Elsewhere Classified

Visit the United States Department of Labor for the complete list of the SIC.

Federal statistical agencies use six-digit codes known as the North American Classification System (NAICS) to classify establishments. Once the data is collected and analyzed, statistical information on similar types of businesses and how they impact the US economy is published.

Typically, collection agencies and debt purchase and recovery companies that collect a new debt or canceled debt use the NAICS code 561440: Collection Agencies

Other companies use these codes:

  • 561450: Credit agencies
  • 541618: Other management consulting services

Visit the United States Census Bureau for the complete list of NAICS codes.

Get approved for a collection agency business account

Start collecting the debt of your debtors with a commercial account, adapted to all the electronic payment transactions of your collection agency. Accept checks and debit credit cards over the phone or online, regardless of your business credit.

TowersPay.com is the number one provider of business accounts to the collection agency industry. We are the processor of choice for Collections Max and the industry’s leading collections software. We’ve helped thousands of collection agencies, large and small, obtain the payment processing solutions they needed to grow their business.

At TowersPay we like to say “Yes”.

Debt collection agencies are dedicated to getting payments from their clients, so not having the credit processing ability can stop your agency before it starts. Apply for a new TowersPay business account today. Our team is experienced in finding business accounts that are friendly to debt collection agencies. We do not require extensive credit history, and we can set up your account in as little as 48 hours. Apply Today!

  • No application fees
  • Competitive rates
  • VISA / MasterCard not required
  • Secure payment gateway

Get approved for a collection agency business account in as little as 24 hours! Get started now or call 1-305-400-1090