Collecting debt is an essential, but often unpleasant part of running your business. You need money to thrive and grow, and customers must pay in order to make that happen.
One of the essential components of any debt collection campaign is a debt collection letter – also called a demand notice. With this simple, but effective tool, you can reduce outstanding accounts receivables, cut collections costs and recover the money you’re owed faster.
Why Send a Debt Collection Letter?
Sending a debt collection notice can help you and your customers in a few ways:
- It saves you time and money
A letter is a much less time-consuming way for your AR team to communicate with customers, so they can be more productive. Plus, it helps you cut down on collection fees.
- Customers have a visual of what they owe
It’s human nature to be skeptical, especially when someone calls saying they owe money. This allows the customer to see the charge for themselves, giving more authority to your demand.
- You get payment
The last thing your customers want is to be sent to collections. A letter allows them to take care of what they owe before that happens.
So what should you look for in a collection letter template?
Download Your Free Collection Letter Template
- Know what to say
- Reduce collection costs
- Increase customer retention
Essential Elements of an Effective Debt Collection Letter
There are a few things that need to be included in any pre-collection letter. Some key elements are:
1) Facts about the account
Often the customer simply had forgotten to pay or needs to be reminded of their obligation. Including all the facts will remind them what they owe and why so they are more likely to resolve their debt.
- Invoice due date
- Amount due
- Summary of what the charges were for
If you have it, include references, documentation or evidence backing up your claim, such as:
- Invoice copy
- Contract, application or terms & conditions they signed
- Records of past communications
This will help to proactively address any potential disputes while making it clear what the customer owes and why.
2) Demand for payment
The next step is to actually ask for payment.
While it seems simple, many businesses miss this step – and guess what? If you don’t ask your customers to pay, they won’t.
Ask for the amount that’s owed in a clear, straightforward way. Don’t hedge or ask if they’d like to pay politely – often people take this politeness as permission to ignore you. Instead, be clear and stick to the facts.
Include:
- Exact due date
- Clear instructions for payment
- Contact information
Including these in your letter not only gives your debtor a clear understanding of what is owed, but also a cut and dry payment date. They know exactly what is owed, why, and when they must act. They also know exactly how to pay you, when they are ready.
Giving them an exact date rather than a time frame to pay is important because people will remember a specific date. If they have 30 days to pay, that time will go by and they will have forgotten all about the issue.
3) Consequences of nonpayment
This will depend on your business, but it’s important to make sure that the customer is aware of what your next steps will be if that debt is not paid by the date given.
Examples of consequences include:
- Late fees
- Sending the account to collections
- Filing a lawsuit
- Reporting to their credit
No matter what your next steps are, the customer needs to know what will happen if they don’t act. This gives them more motivation to get the bill paid as soon as possible and ensures they aren’t surprised when those consequences happen.
Note: Consequences should NOT be empty threats. STICK TO THE FACTS. Only list actions that you will actually take and never misrepresent what will happen or make it sound more threatening than it actually is.
For example, don’t say you will sue someone if you have no intention of starting a lawsuit. And don’t add late fees if they didn’t agree to them in their contract. This will only create more problems for you down the line.
Professionalism Is Key!
When sending a collection letter, there is one more thing to consider: tone.
It’s not just what you say, but how you say it.
In general, aggression doesn’t work. It automatically brings up feelings of stress and anxiety in the customer, which just makes them want to throw the letter in the trash – which helps no one.
Instead, have a sense of empathy in your letter. Remember, there may be a reason they haven’t paid such as financial difficulties, simple misunderstandings, or just plain forgetting to pay.
It’s important to take a fair, but firm approach, asserting your right to payment, while validating the customer’s situation and feelings.
You want to collect, but your customer needs you to understand their situation. If you send an aggressive collection letter right out of the gate, you may risk sending the wrong message and losing your customer entirely.
Ready to Boost Your Recovery? Download Your Free Collection Letter Template Now
Cedar Financial knows that writing these letters is time consuming. To help you get started, we’re offering our proven debt collection letter template, free to download.
Simply:
1) Enter your email
2) Download your free template
3) Start collecting
And, of course, if you find yourself looking for a collection agency that will give you transparent service with a People-First Approach, Cedar Financial is always the right choice. Call 800-804-3353 for a free consultation.
*The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.
