collection letters
Collection Letters
No matter how
carefully a company chooses its credit customers, there will be times when a
bill goes unpaid and steps to collect must be taken. The problem when writing a
collection letter is how to get payment and at the same time keep a customer.
The writer of a collection letter wants to get the money owed and maintain
goodwill.
Collection letters, therefore, should be persuasive
rather than forceful, firm rather than demanding. A fair and tactful
letter gets better results than a sarcastic or abusive one. In fact, collection
letters should be “you-oriented”; courteous, considerate, and concerned about
the customer’s best interest.
The purpose of collection letters is:
1.
To get the money.
2.
To keep the customer and future business.
3.
To build goodwill.
Collection
is a sensitive issue so the following practices may be avoided
·
Falsely implying that a lawsuit has been filed
·
Contact the debtor’s employer or relatives about
the debt
·
Communication to the other persons that the
person is in debt.
·
Harassing the debtor
·
Using abusive or observe language
·
Using defamatory language
·
Intentionally causing mental stress
·
Threatening violence
·
Communicating by postcard (not confidential
enough)
·
Misrepresenting the legal status of the debt
·
Communicating in such a way as to make the
receiver physically ill
·
Misrepresenting the message as a government or
court document
·
Communicating by postcard (not confidential
enough)
·
Misrepresenting the legal status of the debt
·
Communicating in such a way as to make the
receiver physically ill
·
Misrepresenting the message as a government or
court document
·
Any emotional reaction on the part of the debtor
may reduce the chances of recovery.
Successful
collection depends to on the following factors:
·
Understanding of Human Nature
·
Knowledge of collection policies and laws
·
Using persuasive / positive appeals effectively
The following appeals are generally used:
·
Appeal to fairness & justice
·
Appeal to pride
·
Appeal to Goodwill
·
Appeal to sympathy
Right attitude for successful collection:
·
Begin with assumption that most people will pay
·
Give no impression that you doubt the honesty of
the debtor
·
Use a courteous, reasonable tone but become
firmer
·
Be more demanding during the later stages of the
series
·
Remain with the law, don’t harass
·
Show understanding and flexibility while writing
delinquent accounts
·
Send collection notices quickly and regularly
·
Never imply in you messages that payment can be
avoid or postponed.
·
Retain goodwill throughout the series
·
Present your evidence and stick to the facts
·
Persuade the debtors of the benefit he will
receive by paying
·
State clearly the specific action the debtor
must take
Collection
Letter Series
Collection letters are usually sent in a series. The first is mildest
and most understanding, with the letters getting gradually more insistent. The
final letter in this series, when all efforts have failed, threatens 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
negative and strong, depending upon the past payment 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.
Stage I:
Statement of
Account / Reminder
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 should contain a
notice (in the form of a rubber stamp or sticker) stating “Past Due” or “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 customer with an early personal appeal:
Dear Sir,
Our records
indicate that the balance of Rs. 4000/- on your account is now past due.
Payment is requested.
Yours
truly,
(OR)
Dear Sir,
Our records show that your September
payment 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 quickly.
Yours truly,
Stage II:
If the objective statement and reminder
fail to get results, the collection process must gradually become more
emotional and personal. The second collection message, however, should still be
friendly. It should seek to excuse the unpaid bill as an oversight; the tone
should convey the assumption that the customer intends to pay. At this stage,
too, stress on future sales, rather than on payment.
Consider the following letter:
Dear Mr.
Bilal,
Enclosed is a duplicate list of your credit charges from December –
200--. It is sent to you as a friendly reminder that the balance on your
account 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 reminder messages, you can assume that
something is preventing the customer from paying. It may be that the customer
is unhappy with the purchased merchandise or is facing financial difficulty.
Whatever the reason may be for holding up payment, you want the customer to (1)
explain why the payment hasn’t been made or (2) settle the account.
The following letter illustrates the
approach generally 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/- cheque in the mail. But so far we haven’t.
There may be a circumstance beyond your control that prevents you from
settling this account. If so, please write me about it. I’m certain we can work
out a payment arrangement after we know what your situation is.
Just think how good you will feel, Mr.
Javed, when your account with us has been paid in full.
Yours
truly,
Appeal(s) for Payment
Stage III:
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 good 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 customer’s pride and his sense of fair play.
This letter should stress the customer’s
self-interest by pointing out the importance of prompt payment and the dangers
of losing credit standing. The letter should convey the urgency and seriousness
of the situation.
Dear Mr.
Naeem,
Your good credit reputation enabled you to
purchase a Rs. 15000.00 suit from us over three months ago. We were glad to
place your name on our credit list at that time, and we made it clear that
accounts are due on the 15th of the month following the purchase. When you
bought 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 said amount today?
Sincerely,
Here is another letter with appeal.
Dear Mr.
Naeem,
We are truly at a loss. We cannot understand why you still have not
cleared 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. Naeem. Please allow us to
keep serving you.
Sincerely,
Stage 4:
Finally, payment
must be demanded. The threat of legal action or the intervention of a
collection agency is sometimes all that will induce a customer to pay. In some
companies, however, an executive other than the credit manager, signs this last
letter as a means of impressing the customer with the finality of the
situation. Still, the fourth collection letter should allow the customer one
last chance to pay before steps are taken.
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 means 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 payment
or request special arrangements. At this point, the series would be
inappropriate.
For instance, if your customer has owed Rs. 6000/- on account for two
months and sends you a cheque for Rs. 1500/-, you may send a letter such 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 offer 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 telephone my office so that we may
discuss it. Otherwise, we will expect your next cheque for Rs. 1500/- on
September 15.
Sincerely yours,
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