Updated September 19, 2024

Collection agency merchant accounts are essential for companies whose goal is to track down debts. Because of the unique nature of this industry, the rules and regulations around collection agencies are often strict when it comes to payment processing. Moreover, there are federal regulations on how and when to reach out to people who have a debt. As a result, collection agencies are categorized as high-risk by banks and payment processors.

Luckily, companies like Zen Payments provide secure and convenient ways to accept payments from debtors. In this article, we'll delve into the world of collection agency merchant accounts, covering everything from the basics to the application process.

What is a Collection Agency Merchant Account?

A collection agency merchant account is a specialized type of merchant account that allows collection agencies to accept credit card payments from debtors. As you know, any form of payment as a collection agency is a good one, and being able to accept all credit cards at any time is critical. If you run a debt collection business, you'll need a debt collection merchant account for credit card processing.

A debt collection merchant account for credit card processing is usually a high-risk account. You'll need to work with a merchant account provider who is comfortable working with high-risk industries. They can get you set up to start processing payments.

Why are Debt Collection Agencies Considered High-Risk?

If you're looking for a debt collection merchant account, you'll need to use high-risk merchant account services. That's because collection agencies are considered high-risk. There are many reasons why an industry may be considered high-risk, but the biggest factors for collection agencies are listed below.

Recurring Payments

Merchants in the debt collection industry often rely on a recurring payment model. These types of payments put collection agencies at higher risk of chargebacks. This makes merchant account services nervous.

High Rate of Card Not Present Transactions

Debt collection agencies also do a lot of credit card processing without having the credit card physically. These types of transactions are considered high-risk by credit card processing companies and merchant account providers.

High Chargeback Ratio

Debt collection agencies are also more likely to see a high chargeback ratio, meaning payments that are disputed by the customer. Collection agencies will need debt collection merchant accounts because they are comfortable assuming the added risk that a high chargeback rate brings.

High-Ticket Transactions

These are exactly what they sound like: high-ticket transactions are simply transactions that are expensive. If you are going to accept credit card payments for large-ticket transactions, your company is at a higher risk of chargebacks and fraud. This is another main reason the debt collection industry is considered high-risk.

Reputational Risks

While debt collectors, debt buyers, corporate collections, and other debt collections merchants are important, they aren't popular. Credit card processors, merchant solutions providers, and banking partners all worry that partnering with a debt collection merchant could be detrimental to their reputation. To set up a payment solution and start accepting payments, you'll need a company comfortable working with high-risk merchants.

Why Is A High-Risk Account Required In Collections?

Overall, high-risk accounts are more lenient when it comes to what they allow. From high chargeback rates, high ticket transactions, and inconsistent history, these accounts are custom-made for businesses with situational payment issues.

Furthermore, in-person transactions (also known as card-present) aren't practical for many agencies because payments are usually over the phone or online. As such, there is added risk when a merchant cannot see and verify who is making the transaction.

Why Do Collection Agencies Need Merchant Accounts?

As a collection agency, you know that handling payments from debtors can be a complex and time-consuming process. There is a wide range of payment types you can accept, but some are better than others. Cash and check payments can be inconvenient and risky, and most people will want a more convenient way of paying that involves as little effort as possible. However, you probably also know it can be tough to set up a merchant account and electronic payment processing. You'll need to find a company that specializes in debt collection processing.

Compliance And Regulation

Having a custom account ensures compliance with payment processing regulations. For the most part, we're talking about maintaining fraud-free transactions. Collection debt is a transfer of money from one person to another with no real product or service. Because of the nature of this exchange, it's monitored more strictly by legal entities.

Benefits of Collection Agency Merchant Accounts

Having a collection agency merchant account comes with a range of benefits that can positively impact your business operations. Here are some key advantages:

Secure and Convenient Payments: With a collection agency merchant account, you can accept payments from debtors using credit cards, providing a secure and convenient way for them to make payments, whether it's in person, online, or over the phone.

Increased Payment Options: Accepting credit card payments expands your payment options beyond cash and checks, allowing debtors to pay using the method that suits them best. This can result in higher payment rates and improved cash flow.

Payment Gateway: A payment gateway for your business is a management tool that allows you to track payments, generate reports, and reconcile transactions. This can help you see who is paying when and generate forecasting to expand on new business models.

How to Apply for a Collection Agency Merchant Account

Applying for a collection agency merchant account is a relatively straightforward process. Here are some general steps to guide you when you decide to make the move to a custom solution:

Research Payment Processing Companies: Look for payment processing companies that specialize in providing collection agency merchant accounts. Contact them directly to learn about their services, fees, and the many resources you can use along with your account.

Gather Required Documents: Payment processors typically require certain documents for the application process, such as proof of ownership, business registration documents, tax identification number, bank statements, and financial statements. Gather these documents in advance to ensure a smooth application process.

Submit Your Application: Fill out the application form located either online or sent to you by a representative, and submit it along with the required documents they request. Make sure you're thorough and accurate in providing information to avoid delays in the approval process.

Wait For Underwriting: Once your application is submitted, the payment processing company will review your application and conduct underwriting. Some companies offer instant approval merchant accounts, while others take a little longer.

Approval and Setup: You're approved! After review and approval, they'll send you a confirmation email and let you know how to start using your account. You'll also want to install the payment gateway on your website that will link your bank account to customer transactions online.

Why Choose Zen Payments as Your Merchant Account Provider

At Zen Payments, we have over 15 years of experience providing debt collection merchant services. We understand the debt collection industry and will get your debt collection agency set up with customized payment processing solutions.

What makes us the best choice? We partner with over 15 financial institutions, meaning we can find the perfect high-risk payment processing solutions for your needs. We'll get you set up with a high-risk payment processor, merchant account, and payment gateway so that you can accept credit cards and ACH payments. We'll process your application quickly and have you ready to process payments in one to two weeks.