COLLECTION LETTERS

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,