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What approach should you take when you have trouble collecting from customers?
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Quick reference
Collection Letters
What approach should you take when you have trouble collecting from customers?
When to use
Use this section to learn the right protocol for writing to debtors or late-paying customers
Instructions
Reminder letters usually follow a pattern of:
- 1-2 reminder letters
- an appeal letter
- an ultimatum letter
Legal action or submission to a collection agency usually takes place after the ultimatum letter.
Features of a collection letter
- written on company letterhead
- a clear statement that the letter is about the collection of a past due amount
- reference to the invoice(s) and previous reminder letters, if any
- a copy of the invoice or a statement of the account showing the unpaid invoices
- additional costs, such as interest charges or service fees, stated separately
- the full amount to be paid
- the Deadline for payment
- instructions or options for payment
Hints & tips
- Collection letters should be straightforward without sounding angry, harsh, or rude
- Collection letters are still the voice of your company and represent your brand
- 00:04 In the end, it's all about sales.
- 00:07 And in the end, sales is all about collecting.
- 00:10 Sometimes we have to write to customers to inform or
- 00:14 remind them of outstanding payments.
- 00:17 A collection letter is an official message to a borrower or debtor.
- 00:22 Organizations have different policies on how much effort should be spent sending
- 00:26 reminder letters before taking legal steps.
- 00:28 But we generally see a pattern of one or two reminders,
- 00:33 then an appeal letter and an ultimatum letter.
- 00:37 No matter how firm we want to be, a collection letter should never be rude or
- 00:42 offensive.
- 00:43 Never lose sight of your goal, which is to collect.
- 00:46 Legal fees and third-party collectors cost money.
- 00:49 So it's in your interest to get the borrower to cooperate and
- 00:53 to pay you voluntarily.
- 00:55 Here are some characteristics of a collection letter.
- 00:59 First, it's best written on a company letterhead.
- 01:02 This makes it official, and people tend to take those letters more seriously.
- 01:07 You should explicitly state the reason for writing.
- 01:10 So it should say something like, we are writing this letter regarding
- 01:14 the past due amount or the outstanding amount or something to that effect.
- 01:19 The letter should make reference to any previous letters or
- 01:23 to the invoices in question.
- 01:25 If there were any additional costs, like interest charges or service fees,
- 01:30 these should be stated separately.
- 01:32 You should attach a copy of the invoice or
- 01:34 a statement of the account showing the unpaid invoices.
- 01:38 The letter should explicitly state the full amount to be paid and
- 01:42 the deadline for payment.
- 01:44 You should also tell them what instructions or options they have for
- 01:48 payment.
- 01:49 Now let's go through three types of collection letters,
- 01:53 the reminder letter, the appeal letter, and the ultimatum letter.
- 01:58 They all carry a formal straightforward tone with an increasing urgency for
- 02:03 each subsequent letter.
- 02:05 Now for the reminder collection letter, you might issue one or two of these.
- 02:09 The first one would be like a gentle reminder and
- 02:12 the second one a more advanced reminder.
- 02:15 They're written on the assumption that the customer forgot to make payment, or
- 02:20 that maybe they had a temporary setback like money problems or medical issues.
- 02:25 We always use a friendly manner to write reminder collection letters.
- 02:30 For your second reminder,
- 02:32 you'll state that you're open to being contacted by the debtor.
- 02:36 This will give them the opportunity to work out a deadline extension or
- 02:40 a payment arrangement with you, if that's permitted by your business.
- 02:44 Or just so they can explain what caused the holdup and
- 02:47 maybe you can make a note on their file.
- 02:50 Maybe their circumstances changed and they'd prefer to make payment on the tenth
- 02:55 of the month instead of on the first of the month.
- 02:58 So try to be flexible.
- 02:59 Your aim is to collect, not to punish.
- 03:03 Now the appeal collection letter is written when the borrower
- 03:07 isn't responding to any of the previous reminders.
- 03:10 These are considered urgent.
- 03:12 Here, you want to be firm without being rude.
- 03:16 You could put a positive spin on the appeal by saying that
- 03:18 you're certain they want to maintain a good relationship with your company.
- 03:23 You could take another approach by hinting that failure to respond positively might
- 03:27 result in the negative credit standing and increased interest rates or
- 03:32 some other loss of privilege.
- 03:33 With the ultimatum collection letter,
- 03:36 you're giving the debtor a final chance to repay.
- 03:39 You should state what specific action will take place if payment isn't made by
- 03:44 the deadline date.
- 03:45 Whether that's turning the account over to a collection agency or
- 03:49 pursuing legal action.
- 03:50 After that deadline date, don't contact the customer again,
- 03:55 proceed to the next step as outlined in your letter.
- 03:58 At no time should any of these letters accuse the customer of wrongdoing.
- 04:03 Your business will still be characterized by whatever communication you share
- 04:08 with customers, the good ones and the not so good ones.
- 04:11 Any correspondence written on behalf of your company is a representation of
- 04:16 its personality, whether you feel your actions are justified or not.
- 04:21 Harassing past or present customers is never a good look,
- 04:26 even when they aren't the best at honoring their payments.
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