COLLECTION LETTERS

Most people are sensitive about their financial affairs. And this includes perhaps you and me
and many of us. In fact, not in frequently, most of them, if not all, try to hide behind a cloak of
embarrassed silence. A number of them, in their moments of anxiety, if not weakness, do make certain
promises which they know quite well are difficult to fulfil. However, in most instances, these individuals
are honest who feel that, by stalling for time, they might be able to escape out of their predicament –
which, unfortunately, for most, do not turn out the way they expected and wanted all along.

Collection letters should be specific and as short as possible without any appearing curt, and
must refrain from the use of terms or words that are susceptible to variouform part of the collections
meanings or which the customers may not be able to understand well.

Collection letters should use dated action, that is, inform the debtor that the creditor expects
certain action by a given date, and never “in the near future”. Moreover it should concentrate on a
definite course of action.

Collection letters should follow a definite pattern they must start with a casual reMinder of the
obligation and progressing to a final step, that is, the possibility of a legal action if payment is not made
by a definite date.

IMPORTANCE OF COLLECTION LETTERS

The importance of collection letters to any firm which grants credit to its customers may be
observed from the fact that the sale never becomes complete until and unless the account is paid.
Hence, collection letters form part of the collection machinery of the company.

Basically, two objectives are sought behind every collection letter, namely:

1. To collect the money due to the company. The best collection letters are those which bring
immediate and favourable results to the company. The first essential to success in collection by
mail is to find out just why the debtor is delinquent in meeting his obligation to pay. This may
help debtors get out of their shells and thereby break their wall of silence.
2. To keep and retain the goodwill of the customer. Collection letters must be so written as to
make them appeal to the debtors` feelings and sentiments. Extreme care should be exercised
so as not to break down the delinquents` morale. As a matter of fact, collection letters should be
aimed toward making the debtors find ways and means by which they could restore their
feelings of confidence and self-respect through positive, friendly affirmation, and suggestion of
the company.
 QUALITIES OF A GOOD COLLECTION LETTER

a. Be brief – use no more words than it takes to put your message across in the tone of
business-like friendliness. Tact and courtesy call for brevity as well as feeling for the other
fellow`s point of view. Even at the demand stage, a letter can be polite and still be brief – as
a matter of fact, especially at the demand stage, the few words the better.
b. Make your position clear – Never say anything that would in anyway be construed as
willingness to negotiate settlement – you have the right to prompt payments. Although in
settling the tone of your collection letters, you leave the customer an “out” a means of
saving face - you nevertheless establish in the very first notice the simple foundation that
the customer is obligated to pay, and that the creditor has the right to collect.
c. Say what you want the customer do; be specific – From the first stage of collection, your
primary objective is to get the account paid in full. Tell the customer in exact amounts what
you expect of him.
d. Give him both “when” and “how to” – Don`t expect every customer to sit right down and
write out a check for the specified amount unless you ask him to do just that. Ask for the
money.
e. Use simple language – Every branch of management has its own special jargon or unique
use of words. Don`t be too sure of your customer`s understanding you if you ask them to
“ascertain the correctness of the adjustment on the invoice and remit the remainder
outstanding.
f. Play it straight – Humor sometimes works in collection letters, but it must be simple,
straightforward humor. Avoid sarcasm, angry tones. Never give a customer a reason to put
off paying you.
g. Give the customer a good reason to see things your way – Persuasion is still the best
collection technique available. Making the other fellow want to see things your way – that`s
persuasion. You persuade by giving subtly reasons why the other fellow should agree with
you.

TYPES OF COLLECTION LETTERS

Collection letters are of several types, classified according to stages of collection procedure.

1. Reminder Letter
In cases where a creditor is forced to bring to the attention of a debtor about his
existing obligations to the company, the presumption is that owing to the busy world where we
live and the frenzied activities surrounding us, the debtor must have over looked the existence
of the same. Hence the need for a reminder.
It is the first stage of the collection procedure consists of notification that is, sending
bills and statements to the customers. This is followed by the reminder letter.
The first reminder letter is generally sent out within a reasonable time after the mailing
of the invoices, bills, and statements
 Dear _______________________

When an account becomes overdue, as a company policy, we feel we owe it to our

customer to remind him of such circumstance since we honestly feel that such is due to
oversight.
We are thereby enclosing a statement showing your overdue account. We feel that with its
receipt, you will lose no time sending to us a remittance covering said amount.

Very truly yours,

_____________________

2. Sending Past Due Notices

Past due notices are sent out by most companies as a matter of collection procedure.
For instance, read the following notice:

Dear Sir:
ARE YOU AWARE

That your payment is still past due? If you have overlooked it in the rush of other activities,
may we request that you send it now?

We shall sincerely appreciate your immediate action.

Very truly yours,

_____________________

Account No. _______________________

Date due__________________________
Amount due _______________________
Late charges _______________________
Total Amount due __________________

(Notice: Return this slip with your payment)

Messrs.______________________________
3. Follow-up letters

When one or two reminders fail to bring any response from the debtor, collection
letters which are still friendly, but nevertheless firmer in tone, should be sent. Such letters
generally touch on an inquiry from the debtor why no settlement of the obligation is made, or
emphasizing the obligation of the debtor why it must paid soonest.

Dear Customer:

Going over our records, we feel sorry to say you have not responded to previous notices
regarding past due payment on your account. As such, your payment is considerably past due!

We will appreciate it deeply if you forward your payment now or call on us soon to discuss
the matter.

Please help us and yourself to avoid special handling of the account. Working together, we
are sure we can solve the problem.

Very truly yours,

_____________________

Account No. _____________________________

Date due________________________________
Amount of payment _______________________
Late charges _____________________________
Total Amount due _________________________

Messrs.__________________________________

4. The Discussion Letter

When a customer chooses to ignore the reminder letter, the stage is ripe for the next
step – to find out from the customer the reasons why he has not taken any action on his existing
obligations with the company. This letter usually initiates or extends an offer to the customer to
help him in his predicament by discussing it together so that it will obviate the possibility of any
misunderstanding and unpleasant consequences.
 Sir:

With all candor and honesty, we are at a loss to understand the reason behind your
continued silence.

Since it is our earnest desire to help our customers solve their problems, why don`t we
discuss the matter together? Perhaps, that could be one way by which we could tresh out the
matter to our mutual satisfaction and benefit.

Shall we not give this matter a chance to be solved?

Very truly yours,

_____________________

5. The Appeal letter

Not infrequently, there are times when a company may decide to forego sending a
discussion letter to its customer and instead proceed at once from the reminder letter to
sending an “appeal” letter. When such is the case, the letter has the characteristics of both a
discussion letter as well as an appeal letter.

As may be logical to expect, an “appeal” letter is aimed at certain fundamental

characteristics of human nature, his soft spot such as making him conscious of the impact of his
delinquency on his reputation, his standing in the community, his sense of responsibility ans
others, like his pride and ego, etc.

Dear ____________________

Have you considered for a while what your friends and others in the community would
think about you if you persistently and stubbornly refuse to settle your obligations? Indeed, the
consequences would be tremendous as they would be disastrous. These are the things that we
do not want to happen. Neither would you.

Nowadays, nothing could be kept secret and away from circulation. Almost anything could
spread easily far and wide! So why take a chance?

Very truly yours,

_____________________
 A letter of appeal to a business company is presented below:

_________________________
_________________________

Sir:

You probably didn`t realize that normally, it takes a business company long years to build a
reputable name. however, it could be lost in a moment`s indiscretion or utter neglect.

May we thus appeal to your sense of cooperation to settle your obligations with us and
thus maintain our good business relations?

The Credit Department

6. The Demand letter

When reminders, follow-ups, and appeal letter fail to produce the desirable results, the
creditor is made to realize that he has a problem in his hands. He cannot collect the account
simply through the use of collection letters, short of any drastic action.

Hence, the necessity for sending demand letters.

The demand letter is used to inform the delinquent debtor of the consequences that will
befall upon him when the case is brought to court, such as : loss of face or embarrassment,
shouldering additional expenses like court fees, lawyer`s fees, interest charges, and a host of
others.

Since, generally speaking, most people have an innate dread of the law, a threat of legal
action poised by the creditor company could serve as a Damocles Sword hanging over the
debtor`s head. Oftentimes this brings an immediate response from a delinquent customer in the
form of a remittance covering the amount indebted to the company. At times, the customer
may appeal to the company to give him a little time within which to raise funds and settle his
obligations.
 Demand letters might be signed by the company official suggesting part payment before
threatening suit; or threaten to place it in the hands of the company lawyer, or that of a
collection agency.

Dear ___________________

It is rather unfortunate that, through your indifference and lack of cooperation, we find it
necessary to take certain steps to protect our interest. However, we are giving you one last
chance to pay which you should not default, otherwise, you will be made to bear the serious
consequences of your actions which you will surely regret later on.

In the event you fail to pay your obligations within a week from receipt of this letter, we
will be forced to bring this case to court since friendly requests bring neither payments nor
explanations from you.

Doubtlessly, you need not be told that, in such a case, you will have to pay the amount
owed the company plus legal fees, interest charges and liquidated damages.

We cannot wait more than a week to hear from you.

Very truly yours,

_____________________