Collection Letters

Quick reference

• 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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