How To Write A Collection Letter
 By Greg C. Horn

The key to success for any business eventually boils down to one thing: getting paid.

If a customer hasn’t paid you within the terms of your credit agreement, it may be time for you to write one or more collection letters.

There are two primary goals in writing a collection letter. The first, obviously, is to collect money owed to you. But the second may be just as important – to retain customer goodwill, if possible.

There is a fine art to writing effective collection letters. Follow these guidelines.

Gather The Facts
Review the account carefully before you start writing so you have all the details: item and date purchased, amount owed, payment terms, payment due date, etc.

Set The Right Tone
This is critical to retaining customer goodwill. Remember that there could be an innocent reason for non-payment. Maybe the customer simply forgot. Maybe the customer’s bookkeeper quit and she’s struggling to catch up on writing and mailing checks.

The first letter, therefore, should sound more like a friendly reminder and courteous request for payment.

Your tone might sound something like this: “Since I haven’t been able to reach you by phone, I’m following up in writing to make you aware of the past-due status of invoice #1234. Please remit payment at once, or feel free to contact me if you have any questions about the invoice.”

If this doesn’t get a response, subsequent letters should grow increasing firm and direct.

Use The Right Format
Keep collection letters brief and to the point, no more than one page. Use short sentences and paragraphs and clear, direct language. Don’t beat around the bush.

Sign the letter personally. Also, stamp “Confidential” on the envelope and use “Address Correction Requested.”

Be Specific
Tell the customer specifically which invoice is late, how much money is due, and when it was due. Restate your payment terms clearly to emphasize that payment is past due.

When sending a second or third collection letter, tell the customer exactly what you will do if payment is not made. If you plan to turn the debt over to a collector or file suit, say so clearly.

For example: “This is my second (or third) attempt to reach you in writing regarding outstanding invoice #1234. As a reminder, according to the terms of your credit with our company, your payment of $500 was due within 30 days of the invoice date, which was Aug. 15, 2007. Please remit payment at once. If payment is not received by Oct. 15, 2007, your account will be turned over to a collection agency, which will begin pursuit of payment.”

Don’t make idle threats in your letter. You must be prepared to follow through on any action you threaten to take.

Also, don’t try to trick the customer by trying to sound like you are a collection agency. If you do, you are legally bound to follow all of the laws that govern collection firms.

Prepare Collection Letters In Advance
It’s a good idea to prepare several collection letters ahead of time, and perhaps even have them reviewed and approved by an attorney. You can then send them out at pre-determined past-due intervals.

For example, you could write three different letters, each with an increasing level of firmness and urgency, and mail them at 15, 30 and 45 days past due.

This helps accomplish another important objective: You must treat every past-due customer the same, using the same collection process (and ideally the same collection letter) with each one.

Collect Letter Do’s And Dont’s

Do:

• Include any information the customer will need to make the payment: your address, phone and fax numbers, e-mail address, any payment reference numbers, and perhaps a postage-paid return envelope.

• Remind the customer of the benefits of making payment promptly, such as maintaining a good credit rating and retaining future credit with your company.

Don’t:

• Be emotional. Just state the facts, clearly and without any inflammatory or threatening language.

• Make any reference that might imply that the customer is dissatisfied with your product or service.

• Make an offer in writing to accept less than the full amount of money owed to you, or to work with the customer on a payment plan, unless you are fully prepared to do so. Once you make this offer, you may be legally bound to honor it.

(Posted September 2007)

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