Why chargebacks matter to processors

In spite of stern rules that come with the collection of debt, most high-risk credit card processors won't work with collection agencies. TailoredPay specializes in setting up businesses in the debt collection space with a merchant account. We will work with you to get your application approved within 48 hours.

Underwriters keep their eyes out for red flags, things that could negatively impact the processor and their sponsor bank. A large number of chargebacks is a sign that a company is facing issues.

Chargebacks suggest that things aren't right with the company, probably because of poor communication, lack of clarity, bad customer service, or a combination of issues. Most merchants don't understand how vital a chargeback mitigation program is.

As such, merchants must do what they can to make sure chargeback rates remain under 2%. For instance, a company with 200 monthly transactions and eight chargebacks would have a chargeback ratio of 4%.

Most merchants assume that they can sign up with another processor if things go south with the first account provider. This is not always the case, because the terminated merchant has become a liability to other processors. Obtaining another merchant account after losing your first one is not easy. A large number of chargebacks and a negative account history negatively affect debt collection companies when they try to apply for a new merchant account.

Simple approaches to reducing chargebacks

Customer satisfaction polls and electronic receipts can influence things in your favor. Most chargebacks stem from customers forgetting or not identifying charges on their credit card statements. Giving customers an electronic receipt with the merchant's billing support numbers and email addresses will lessen the chances of an account ending up in the hands of a collection agency.

Chargeback mitigation programs and customer dispute alerts, similar to the ones provided by TailoredPay, offer merchants some time to respond to a dispute and prevent chargebacks. Alerts aren't able to catch everything, but they can reduce the chargeback ratio significantly.

TailoredPay uses Verifi's CDRN (Cardholder Dispute Resolution Network) and Ethoca's alert system to offer top-notch chargeback and alert prevention systems for high-risk merchants and to simplifiy the chargeback fighting process. The dispute network works with card issuers and banks, allowing merchants to resolve credit card transaction “disagreements”.

Collection agencies can learn from companies that have been around for a while. When debtors try to get in touch with their issuing banks, collection agency employees should be taught to offer them complete refunds. This will be better for your bank account than a chargeback would be.

Further, 24/7 customer service can be implemented to stop debtors from disputing credit card charges. Having a staff member available 24 hours a day usually makes customers feel better and gives merchants more credibility.

Collection agency merchant account categories

Each company is given a four-digit SIC (Standard Industrial Classification) code by their country. Codes label the business' main purpose.

Companies that provide collection services are part of the SIC Code 7322: Adjustment and Collection Agencies, if not one of the following:

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

To see a full SIC list, consult the United States Department of Labor.

NAICS (Northern American Classification System) are used by federal statistical agencies to categorize a business. After information is acquired and examined, statistical data on similar companies and how they affect the American economy is produced.

Generally, debt recovery and collection agencies, as well as businesses that purchase charged-off or new debt, fall under NAICS code 561440: Collection Agencies, while others use the following:

• 541618: Other Management Consulting Services
• 561450: Credit Bureaus

For a full NAICS code list, check out the United States Census Bureau.

Get started with merchant account services for debt collectors

TailoredPay supports collection agencies that need dependable payment processing in a heavily regulated and dispute-sensitive environment. Instead of applying retail rules to collections, TailoredPay builds payment setups around how agencies actually receive and manage payments.

With TailoredPay, you can process credit card payments without holdbacks and keep your cash flow healthy.

Built for regulated payment activity

Collection agencies operate under strict consumer protection laws. TailoredPay is a high-risk payment processing provider that works with banking partners that understand these regulations and approve compliant collection models.

Support for multiple payment methods

Agencies often accept payments online, by phone, or through mailed invoices. TailoredPay supports these channels while keeping payment flows consistent and traceable.

Chargeback and dispute management guidance

Disputes are common in the debt collection process. TailoredPay helps agencies manage chargebacks through clear billing descriptors, documentation support, and structured response processes.

Reduced risk of frozen funds when you accept credit card payments

Sudden account holds can disrupt creditor settlements. TailoredPay underwrites collection agencies properly from the start, reducing unexpected interruptions.

Clear reporting and reconciliation

TailoredPay provides reporting tools that help agencies track payments, settlements, and transaction records accurately.

The right merchant account provider helps you get predictable payouts, with low risk of disputes, chargebacks and regulatory problems.

Frequently asked questions

Why are collection agencies labelled high risk by payment processors?

Collection agencies are labelled high risk because they operate in dispute-heavy environments, handle third-party funds, and face strict regulatory oversight. These factors raise concerns for acquiring banks.

How can collection agencies collect payments reliably?

Collection agencies can collect payments through specialized providers that understand high-risk businesses. This includes accepting payments through online portals, phone payments, and in-person options.

Can collection agencies offer recurring payments?

Yes. Many agencies use recurring payments or recurring billing to help debtors pay balances over time. High risk providers support these setups while reducing dispute exposure.

Do collection agencies support mobile payments?

Yes. Payments can be accepted through mobile payments on mobile devices, making it easier for debtors to send debt collection payments.

Are ACH payments an option for collections?

ACH payments are commonly used by collection agencies because they offer lower costs and predictable processing. Providers experienced with high-risk businesses can support ACH alongside cards.

How does sales volume affect payment approval?

Sudden increases in sales volume can trigger reviews if not disclosed upfront. High-risk payment processors set clear volume expectations during underwriting.

What role do acquiring banks play in collection payment processing?

Acquiring banks hold the merchant account and assume financial risk. Agencies labelled high risk need banks that are willing to support regulated industries and complex billing models.