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Ten Tips for Writing Collection Letters
by Stacie Heaps, Professional Editor/Writer (English B.A., Editing Minor)
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1. Consider offering a discount for early payment on products or services. In this type of letter, you can remind or notify a customer that if you receive payment within a certain period, you will give him or her a discount on the purchase. Be specific about the conditions for the discount.
2. Gather all the facts about your customer's account and to encourage your customer to pay the money owed. Always be specific about how much the customer owes and about when the money was due to avoid future misunderstandings.
3. Offer assistance to a customer having difficulty paying an overdue bill. In fact, often it is the only way to collect payment. Use a sincere tone, and gently persuade the customer to contact you to talk about the problem. When discussing new terms, be sure that any new arrangement is one that the customer can handle and that you can feel comfortable about.
4. Take a firmer stand in your next letter if after writing one or more collection letters you have received no response from the customer (even after suggesting an alternative payment plan or other options). Unlike earlier letters, this one should carry a demanding rather than a requesting tone. Although this letter is less friendly than other letters, it should still make it easy for the customer to respond.
5. Let the customer know exactly what the penalty will be in the final letter unless he or she responds immediately with the payment. Don't make an empty threat, and don't send another letter asking for payment. You must be prepared to follow through with your claim.
6. If you must cancel or withdraw a customer's credit account, explain clearly your reasons for doing so. Be sure to use a courteous tone when writing this letter, as you may want to maintain this customer's business, even if you must ask for cash payments from now on.
7. If you receive a collection letter and plan to pay your overdue bill, it is a good idea to write a letter reassuring the creditor of that fact. Use simple language to clearly state your intent, and refrain from making promises that you are not sure you can keep. If necessary, you may want to consider outlining your proposed payment plan in your letter or asking about an alternative payment plan.
8. Though it is usually not necessary to send a letter acknowledging payment of an overdue balance, you may wish to do so if you feel it is important to clear the slate or ease the customer's mind, or if the customer requests it.
9. If you have sent a collection letter by mistake, you should apologize for your error and acknowledge any inconvenience you may have caused. You should also state the current condition of the customer's account.
10. When requesting payment of a personal loan—because the person who borrowed the money from you is most likely a friend or family member—your letter should communicate very little pressure. Don't hesitate to make the message as personal and warm as possible.
How to write the perfect collection letter
In this article, you will learn about the various kinds of collection letters. You will also learn what actions you can take before turning an overdue account over to a collection agency.
Do not suggest in any collection letter that the customer might be dissatisfied with the product or service he/she purchased from you.
The point of the collection letter is always to collect the money that is owed. A new type of collection letter is sent each time you escalate your demand for payment. Below are examples of several types of collection letters that may help you to collect your money.
The Reminder Collection Letter
The first collection letter should only be a friendly reminder. Assume that the customer has forgotten to pay and courteously invite him/her to pay promptly. Most people will make a payment after a couple of reminders. If there is no response to these reminders, you should assume that the customer is not paying because of financial, medical, or other personal difficulties.
Suggestions for a typical format:
- Send a copy of the original bill.
- Stamp on it Reminder or Past Due and highlight the amount past due.
- Include a short statement indicating the amount due, the due date, late charges (if any), and the account number.
- Make sure the address where the customer should send payment is plainly indicated. Including a pre-addressed envelope for payment (with or without postage) is also helpful.
If the customer has not even made a partial payment after a couple of gentle Reminder Collection Letters, you can send a final reminder collection letter to ask why the customer is not paying. A final reminder letter should explain that there will be consequences for continued nonpayment. If no payment on the amount owed is received, then you will need to take a more aggressive approach in follow-up collection letters.
The Inquiry Collection Letter
Before you employ any harsher means, try to discover if the customer has extraordinary circumstances that are preventing him/her from making any payment. You can help maintain a good relationship with the customer and go a long way toward collecting your debt if you are sensitive to any potential problems. The Inquiry Collection Letter demonstrates your willingness to help the customer solve his/her current financial difficulty by offering new terms. If you are willing to accept a partial payment now with regular payments after that, most people in financial difficulty will be grateful for this option and agree.
Remember, it is better to collect your money through a series of payments than not to collect it at all. It is also better to work with your customers than to alienate them, because their present difficulties may resolve and they may prove to be more reliable in the future.
Tip for the first inquiry letter: Make a request for prompt payment, and add your willingness to help the customer by offering new terms for repayment.
Tip for the second inquiry letter: Use positive wording, but state firmly that the customer will pay a penalty for continued nonpayment, such as a late fee, a collection fee, or interest on the amount owed.
The Appeal Collection Letter
If the customer fails to respond to any of the Reminder Collection Letters or to the Inquiry Collection Letters, you must take a more aggressive approach. Because the customer has not responded to date, you should assume that he/she will probably not respond to any further demands for payment. This is why many organizations at this point turn their debtors over to a collection agency. If you do choose to continue the collection process yourself, you can take two basic approaches:
- Positive appeal approach: Try to appeal to the customer's sense of fairness, personal pride, or his/her desire to maintain a good credit standing and its connected privileges.
- Negative appeal approach: If the positive approach is ignored, inform the customer that continued nonpayment could result in various penalties:
- the loss of his/her good credit standing and its connected privileges
- the initiation of legal action to reclaim any purchased goods; any services will be discontinued
- he/she may incur additional debt through collection fees and/or interest on the amount owed
The Ultimatum Collection Letter
If the customer does not answer any of your collection letters, you can give him/her a final chance to pay. The Ultimatum Collection Letter needs to state the specific action you will take if the customer does not send payment by a certain date. Your statements should be fair, reasonable, and logical. In your last letter:
- First review the history of the account: what the customer purchased, your repeated efforts to collect, etc.
- Give a deadline for payment or for the customer to commit to a repayment agreement—otherwise you will take legal action to reclaim the purchased goods and/or turn the account over to a collection agency.
- Be careful not to use name-calling or to make accusations, which are both illegal. Always be careful with what you put in print! Simply state the facts and explain why his/her inaction is causing you to take action.
If the Ultimatum Collection Letter fails to bring results, be sure to follow through with your stated action.
Note: Debt collection is not an enjoyable pastime, but if you follow these logical steps in preparing your collection letters, you will succeed in collecting payment on many of your delinquent accounts.
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