Collection Letter - introduction, explaination, method and sample

What is Collection letter? What points should be kept in mind while writing it? Also explain the three fold purpose of collection letter.

 

Collection Letter

 

Introduction:

Modern business is done mostly on credit basis. A collection or dunning letter is written when a customer, client or vendor has failed to make payments as agreed.  Collection letters should be persuasive and firm rather than forceful and demanding. A fair and tactful collection letter not only gets money but also retains customer building the goodwill of business.

Meaning:

"Letters written to customers for the collection of overdue amount are called collection letters"

Explanation:

Letter should combine a touch of friendliness with the professionalism and urgency that you need to get your bill on the top priority. 

But don't let the friendliness fool you. At times, collections require a firm hand. You'll have a choice of letters so that you can treat each customer the way that customer deserves to be treated.

 

Steps/series of actions involved in collection letter

 

Writing a collection letter is not a fun task. Here are some helpful tips for writing professional collection letters.

1. Facts Collection:
   Get the facts straight. Gather all the necessary information about the client and account for which you are trying to collect. You need to know the dates of service, the total due, any partial payments and when the account was due. Don’t hit the honesty of the debtor 
2. The First Reminder:
   Write a brief one page letter that serves as a courteous reminder. State the basic facts about the debt you are trying to collect, and set a deadline for when you expect to be contacted..
3. The Second Reminder:
   Send a second letter if you do not receive a response by the date specified. Refer to the first letter you sent and restate the facts about the account. Add your willingness to help the customer by offering new terms and date for response or payment.
    
    
4. The Third Reminder:
   Increase the harshness of each letter, and send a third letter expressing surprise at the lack of response to your request for payment. If partial payment has been received, note the payment and balance due.
5. Record partial collection:
   Document the series of letters, and record your collection efforts as well as any partial payments.
6. The fourth reminder with threatening:
   Send a final letter stating your efforts and intention to turn the account over to a third party collection agency or attorney. 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 why his/her inaction is causing you to take action.
7. Intimation To The Third Party:
   Submit the account information to a credit bureau, collection agency or attorney. 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.
    
   Three Fold Purpose of Collection Letter
    
   Business man wants to get his money, but frequently he also wants to maintain a customer relationship and keep his good reputation in the marketplace. While writing a collection letter, he keeps some purposes in his mind. Theses are three in number. It is why they are often called three-fold purpose. 
   The three fold purpose of collection letters are: 

1. To get the money
2. To retain the customer and future business. 
3. To build goodwill.

1. To get the money:
   One of the three fold purpose of a collection letter is to collect positively the overdue amount of money as soon as possible. It is easier to get money if the collection letter is written courteously and tactfully being considerate, and concerned about the customer’s best interest. 
2. To retain the customer and future business: 
   The second purpose of the collection letter is to retain the customer. If the collection letter is not written courteously and tactfully, customer may be lost. So a good latter not only collects money but also retains the customer.
3. To Build Goodwill: 
   The third important purpose of writing collection letter is to build goodwill of the business in the sight of the customer. This purpose can be achieved if collection letter is written politely and courteously. Use of harsh and insulting words goes against the goodwill of business.
   Conclusion:
   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.

 

Collection Letter

     The 1^st Reminder

Examination Hall                                 

City A.B.C

                                                                                                                December 23, 2008

The ABC Co. Ltd.,                                                                                                                                                          Multan Road,                                                                                                                                                Lahore.

 

Subject:          Overdue Invoice # ________ Amount: ________________

Dear Sir/Madam,                                                                                                                                 

                        We are writing this letter to call your attention to the above referenced overdue account with us. As you are aware that our 'Terms of Sale' are Net 30 days and we are still anxiously awaiting your payment.

            If you wish to discuss any issues please contact us immediately otherwise we look forward to getting paid at the earliest.  Please ensure that payment of Rs.________ reaches us, latest by____________________.

            Thanking you for your business and anticipating a prompt response.

 

 

Yours sincerely,

  X.Y.Z

 

The 2^nd  Reminder

 

Subject:          Overdue Invoice # ________ Amount: _______________/-

Dear Sir,

            Recently your attention was called upon regarding the above referenced account via our letter No. 55/C of December 15, 2009. The amount of Rs._________ /- is now considerably past due and what concerns us that to date we have not heard back from you. We must receive payment immediately to keep your credit in good standing with us.

                        Please courier your payment today or alternatively. We sincerely hope and expect that your payment be on its way so that there is no disruption to our business partnership.

The 3rd Reminder

(Letter threatening legal Action)

 

Subject:          Overdue Invoice # ________ Amount                                 /-

Dear Sir,

                         You have been given notices more than ample time regarding your now seriously overdue debt of Rs._____________ with us. We have instructed our offices to stop all supplies to your company till this account is cleared. Your immediate attention is sought to this urgent matter. Please understand that this is our final notice to you.                                  However, we give you one last opportunity to clear the account by February 5, 2009. After this date it is our normal policy to pass-on seriously delinquently accounts to a third party collection agency or our legal counsel. This could further jeopardize you credit rating in the industry.

                        We trust that this will not be necessary and our business affiliation will continue.

                        Once again this is our Final Notice.

 

Yours sincerely,

XYZ

Tel: ###########

Email: ar@abcdef. CC

Collection Agency/Legal

Email: ar@abcdef.com