One of the most important aspects of any successful business is their reputation. A business with a solid reputation means they can be trusted by customers. Plus, it can help a business reach new levels of success when their reputation is properly protected. Conversely, a poor reputation not only hinders your chances of growth, but it may also have detrimental effects that can keep you from reaching your goals.
One area where a solid reputation will be needed is when obtaining a collection agency merchant account. This is especially true for collection agencies as they must follow the rules and regulations that govern getting a merchant account for the processing of credit cards.
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Difficulties in Obtaining Merchant Account for Collection Agencies
It may be surprising for those who are just starting a collection agency that getting a merchant account from a bank is difficult. This is because most banks have experience with collection agencies and the general rule is to decline their application.
This is mostly due to the negative perception of collection agencies, especially from the public. While collection agencies are regarded as an important part of the business community. The actions of a small number of agencies have greatly dimmed the view of their reputation from banking establishments. Plus, the overall negative reputation from the public combined with strict regulations from government agencies such as the CFPB and FDCPA have only added to the unwanted perception.
It can be quite challenging for a collection agency to keep up with the ever-changing rules and regulations that govern the industry. Many such agencies find themselves in hot water when they have not properly reviewed the new rules. In other words, collection agencies which employ practices that are deceitful have helped to ruin the reputation of the industry. The result is that even collection agencies that have garnered a positive reputation still face an uphill climb in getting a proper merchant account
Other factors that have played a strong role in reducing the image of collection agencies include the following:
- High employee turnover rate
- Disputed credit card payments with collection agencies
- Overall stress and challenges of the collection industry
What follows are the steps you need to take to maximize the chances of establishing a merchant account for your collection agency.
How to Obtain a Merchant Account For Debt Collection Agency
While it may seem like getting a merchant account is a herculean task, the truth is that many banks along with some merchant providers are willing to give collection agencies a fair shake. This is because the service of collection is a necessary one within the business community. It means that finding the right bank or merchant provider means a business that is not taken aback by the negative reputation that the industry has developed over the years.
Of course, you will have to identify such banking and lending institutions yourself if you want to raise your chances of getting a merchant account. You can start by doing the following.
Ask About High-Risk Businesses: This is a simple, straightforward method of finding out whether a back is willing to open a merchant account for your collection agency. If they are open to high-risk businesses, ask them for references, particularly in the collection agency community. You can then find out first-hand if such institutions back up what they say on the phone.
Maintain 0% to 1% Chargeback Ratio: While each bank or merchant provider may vary in their standards, most will demand that your chargeback ratio should be less than 1%. This helps to demonstrate the validity of your application.
If your chargeback ratio is considerably higher, then you will want to address that first before making your application.
Gather Documents: When you find an institution that does have favorable policies towards your collection agency, you will still need to gather the proper documents to qualify for a merchant account. Keep in mind that each bank or merchant provider will have their own set of requirements. But most of them will include the following:
- Business license or articles of organization for the company
- EIN Number of Company
- The last three months of bank statements
- A business check that has been voided
- Valid driver’s license for all those signing the applicatio
You should have these on hand so you can move quickly to get a merchant account. Double-check your documents before sending them to the bank. This should include any additional documents requested by the bank or merchant provider.
However, do not feel that having your documents in order or a chargeback ratio of less than 1% will guarantee that you will get a merchant account. There are other factors involved that will weigh in on the decision.
Underwriting Risk Considerations:
The most important aspect that any underwriter, including banks and merchant providers look for is the level of risk. The riskier your business looks, the less likely you will get a merchant account. It is why having a good reputation for paying your bills on time, having a low chargeback ratio, and following all current rules and regulations is so important. But there are some other issues that an underwriter will consider below
- State licenses in order
- Proper business model
- Solid business and personal credit of owner
- Visa/Mastercard compliancy for website regulations
Keep in mind that if you have a prior processing history, that will need to be presented as well. If you manage to exceed the requirements, then you will most likely be approved. Now you will need to address the fees associated with a merchant account.
Associated Merchant Account Fees and Assessments:
The bank or merchant provider will set a series of fees for the services they are providing in supporting your merchant account. The fees themselves are usually a standard rate but may be influenced by your industry and profit projections that you have provided.
In addition to the standard monthly fee, you may also pay a gateway and transaction fee. Plus, there may be a discount rate depending on the credit level of your company. Be sure to discuss all options with your bank once your merchant account has been approved. You’ll want to be aware of any limitations or penalties that may occur. Now, you are ready to run your merchant account.
Mark Sands, co-founder of High Risk Merchant Account LLC, is an authoritative expert in the high-risk merchant account space.
Mark has decades of experience in the payment industry & enjoys writing on entrepreneurial related topics.