COLLECTION LETTER

Franks Plumbing

An official message sent to a borrower or

a customer informing them of a pastdue balance. The letter may include late
charges, warnings of potential penalties for
late repayment or non-repayment, or
notification of possible legal action should
the recipient fail to settle their account.

123 Main Street

Written notification of the pending amounts,

meant to prod past-due customers to make
a payment. Collection letters are sent usually
one after another, with the tone and language
getting more direct with each
successive letter, until at least some payment
is received.
An effective letter of collection achieves its
purpose without destroying the
customers' goodwill that was painstakingly
acquired over the years. Also called dunning
letter. Not to be confused with collection letter.
Collection letters are a necessity of most
businesses
EXAMPLES:
After not paying his credit card bill for over 6
months the company sent Joe a letter of
collection stating that the amount was so far
past due it was sent to a collection agency.

After his wife lost her job several of their

monthly bills fell behind eventually resulting in

them receiving a letter of collection from the

gentleman who had repaired their fence.

Sample First Collection Letter #1

December 2008

Anywhere, NH 05000
Account# or Invoice #:123
Balance due or Past Due Balance: $100.00
Dear Jim,
This is a reminder that your account balance of
$100.00 was overdue as of November 28,
2008.
Please pay this amount today, I have enclosed
a stamped payment envelope for your
convenience.
Thank you for your payment.
Sincerely,
Frank Smith
Franks Plumbing
As you can see from the sample collection
letter, the most effective collection letters are
short, to the point and easy to read. Try to
avoid long or confusing words and sentences.
The more direct letter leads to fewer
misunderstandings. Your collection letter
should:
Tell the reason for your letter in the first
sentence.
Explain more about the first sentence in
your second sentence.
Suggest a solution.

Thank the recipient.

Your collection letter is a reflection of your

business, keep it professional. Remember that
your letter is to persuade someone to send you
money. Your wording and tone are critical,
especially if this is a customer you want to
continue to do business with. Always assume
the customer will pay. Enclosing an envelope
for payment is always a good idea. If you can
include postage on the payment envelope, that
is better. The easier you make it for the
customer to make the payment, the better
your chances are of getting paid.
As you can see, this letter is written with the
intent to get paid, but not at the expense of
the customer relationship. Invoices go past due
for many reasons, so you dont want to jump to
conclusions and start off with a harsh letter
that may damage the relationship.
If the invoice continues to go unpaid, a
collector should try again to call the customer
and a second collection letter should be sent.
The second letter will increase the pressure but
must remain professional, a tough balancing
act.
Collection Letter Series
Collection letters are usually sent in
a series. The first is mildest and most understa
nding, with the
letters getting gradually more insistent. The fin
al letter in
this series, when all efforts have failed, threate
ns to
turn the matter over to
a lawyer or collection agency or court of law.
Of course, the tone of any letter in the

series will vary, from positive and mild to nega

tive and strong, depending upon the past pay
ment record of
the
particular customer. The intervals between the
letters may also vary, from ten days to
a month at the
start, from one to two weeks later on.
Every letter in a collection series should
contain certain information.
1. The amount owed;
2. How long the bill is overdue;
3. A specific action the customer may take.
Some companies also like to include a
SALES APPEAL, even late in the series, as
an extra incentive
for payment.
The majority of bills are paid within ten days of
receipt, with nearly all the rest being
paid within the
month. Therefore, when a bill is
a month overdue, action
is called for. Still, the collection process must
begin gently.
Statement of Account / Reminder
(The 1st Step)
The monthly statement reminds the customer
of outstanding bills. If it is ignored, it should
be followed
(about a week or ten days later) by
a second statement. The second statement sh
ould contain a notice (in
the form of
a rubber stamp or sticker) stating "Past Due" o
r "Please Remit". An alternative is to include a
card or slip with the statement, alerting
the customer to the overdue bill. The notice
could be phrased in
formal, possibly even simple language; it is an
objective

reminder that does not embarrass the custome

r with
too early a personal appeal:
Our records indicate that the balance of Rs. 40
00/- on your account is now past due. Payment
is requested.
(OR)
Our records show that your September payme
nt is more than a week over-due.
If you have recently
mailed your cheque for Rs.1548700/we thank you. If not, please send it in quickly.
Stage 2
If the
objective statement and reminder fail to get re
sults, the collection process must gradually be
come
more emotional and personal. The second colle
ction message, however,
should still be friendly. It should
seek to excuse the unpaid bill as an oversight;
the tone should convey the assumption that th
e customer
intends to pay. At
this stage, too, stress on future sales, rather th
an on payment.
Consider the following letter:
Dear Mr. Bilal,
Enclosed is a
duplicate list of your credit charges from Dece
mber 200--. It is sent to you as a
friendly reminder that the balance on your acc
ount with us is past due. Please take a
few minutes today to
send us your cheque for Rs. 224760.Use the
postpaid addressed envelope provided for your
use.
Yours truly,
When a
credit customer does not respond to personal r

eminder messages, you can assume that some

thing is
preventing the customer from paying. It may b
e that the customer is
unhappy with the purchased
merchandise or
is facing financial difficulty. Whatever the reaso
n may be for holding up payment, you want
the customer to (1) explain why the payment h
asn't been made or (2) settle the account.
101
VU
The following letter illustrates the approach ge
nerally used in requesting an explanation:
Dear Mr. Javed,
We are concerned about your overdue account
. Several reminder notices have been mailed to
you,
and we expected to receive your Rs. 38400/- c
heque in the mail. But so far we haven't.
There may be
a circumstance beyond your control that preve
nts you from settling this account. If so,
please write me
about it. I'm certain we can work out a paymen
t arrangement after we know what your
situation is.
Just think how good you will feel, Mr. Javed, wh
en your account with us has been paid in full.
Yours truly,
Appeal(s) for Payment
Step 3
The next collection message is an appeal to
the credit customer to pay. This is
a stern letter, but calmly
written. Typical appeals are to
the customer's pride or sense of fair play.
Your appeal for payment should not threaten
to take the debtor to court unless you actually
plan to.

Give the person another chance to save a goo

d credit standing by sending payment before
the deadline
usually 10 to 12 days from the date of
the letter. The following letter is an example of
a courteous request
for payment which appeals to both the custom
er's pride and his sense of fair play.
This letter should stress the customer's selfinterest by pointing out the importance
of prompt payment
and the dangers of losing
credit standing. The letter should convey the u
rgency and seriousness of the
situation.
Dear Mr. Naeem,
Your good credit reputation enabled you to pur
chase a Rs. 15000.00 suit from us over three
months
ago. We were glad to place your name on our c
redit list at that time, and we made it clear tha
t accounts are
due on the 15th of
the month following the purchase. When you b
ought the suit, you accepted those terms.
Your credit reputation is a valuable asset. We
want you to keep it that way because of
the advantages it
gives you. You have enjoyed
a liberal extension of time, but to
be fair to our other customers, you must pay
the amount that is past due by March 2.
Won't you please send us your check for the sa
id amount today?
Sincerely,
Dear Mr. Naeem,
We are truly at a loss. We
cannot understand why you still have not clear
ed your balance of Rs.

5000/-, which is now three months overdue.

Although you have been a
reliable customer for 5 years, we are afraid you
are placing your credit
standing in jeopardy. Only you, by sending us
a check today, can ensure your reputation and
secure the
continued convenience of buying on credit.
We would not like to lose a valued friend, Mr. N
aeem. Please allow us to keep serving you.
Sincerely,
Stage 4
Finally, payment must be demanded. The threa
t of legal action or the intervention of
a collection
agency is sometimes all that will induce a cust
omer to pay. In some companies; moreover,
an executive
other than the
credit manager signs this last letter as
a means of impressing the customer with the fi
nality of
the
situation. Still, the fourth collection letter shoul
d allow the customer one last chance to pay be
fore steps
are taken.
102
VU
Final Collection Letter
Dear Mr. Naeem,
Our Collection Department has informed me
of their intention to file suit as you have failed
to answer
any of our requests for payment of
Rs.5000/-, which is now 4 months overdue.

Before taking this action, however,

I would like to make a personal appeal to your
sound business
judgment. I feel certain that,
if you telephone me, we can devise some mea
ns to settle this matter out of
court.
Therefore, I ask that you get in touch with me
by the 25th of
the month so that I may avoid taking
steps which neither of us would like.
Truly yours,
A customer may, for example, offer an excuse
or promise payment; he may make a partial pa
yment or
request special arrangements. At
this point, the series would be inappropriate.
For instance, if your customer has owed Rs. 60
00/- on account for two months and sends you
a
cheque for Rs. 1500/-, you may send a letter s
uch as the following:
Dear Mr. Naeem,
Thank you for your cheque for Rs. 1500/-. The
balance remaining
on your account is now Rs. 4500/.
Since you have requested an extension, we off
er you the following payment plan: Rs. 1500/by the
15th of the month for the next three months.
If you have another plan in mind, please teleph
one
my office so that we may discuss it. Otherwise,
we
will expect your next cheque for Rs. 1500/- on
September 15.
Sincerely yours