Note: Please see video of how to obtain a high risk merchant account: http://www.youtube.com/
What is a Collections Merchant Account?
As the name indicates, this is a type of high risk merchant account that is opened to process and receive the credit card payments for a collection agency. Since collections business carries a greater degree of risk because of the likely chargebacks and payment conflicts between the lender and the customer. In case the collection agency fails to get any amount out of the defaulted client, the investment of the payment processor is gone, making this business extremely high risk.
Risks Involved in Collection Business
Debts are to be paid back on time but the usual delay in payments or the non-payments is caused by few factors which are:-
Some processing error
Theft of the credit card or fraudulent use by any unauthorized person
Poverty or inability to pay back the funds
It must be kept in mind that the collection agency cannot force the payments of the outstanding due through threatening or harming in a physical way. Such a practice is going to result into criminal investigation against the collection agency as well as the principal beneficiary. As the collection can only be done through better customer care service, the risk in credit card payments is quite high as there is every likelihood of the client refusing the payments altogether.
A few of the risks involved in collection business related to credit card payments are:-
The payments are only delayed or stopped once a person cannot pay or does not want to pay. So the success of the collections agency cannot be guaranteed. If the person had the capacity to pay the debt back, he would have already done it directly to the lending/credit card company.
Charge backs if substantiated by the client are likely to cost the merchant from $20 to $60 per transaction.
Increasing number of charge backs puts the business in danger by jeopardizing the merchant account.
Initial cost of hiring the collection company is quite high and if the debt is not obtained even through the collection agency, the payment processor suffers the loss.
Collections Merchant Account must be Expensive
Since the Collections is a really High Risk business, collections merchant accounts are offered at prohibiting prices by few of the companies. The usual charges indicated by them include:-
The startup processing fee ranges from $200 to $1000
A set percentage on every credit card transaction
A minimum monthly fee of about $25
Up to 10% of your average monthly profit as escrow to cover the bank charges or unpaid bills
Few of the companies would even ask you to pay even up to 40% of your starting income as escrow to cover the risk factor associated with your Collections Merchant Account.
These prohibiting costs and expenditures can be avoided if you get your applications processed through experienced agents like http://www.high-