Credit Collection Form Letters
Whether or not your business chooses to use cash discounts or delinquency charges, a systematic follow-up procedure should be employed with all past-due accounts. Usually, this will take the form of a series of letters or telephone calls or both, as required.
First Collection Letter
When an account becomes approximately 15 days past due, the customer should be sent the first collection letter. Since the account cannot be considered seriously delinquent at this time, the tone of the letter should be moderate. Later letters should establish a firmer tone so that the customer is made aware of the seriousness of the situation.
The 15-day past-due letter should read about as follows:
Dear Mr. Adams:
According to our records, your current balance due is $473.25. Of this amount, $215.38 is more than 30 days past due. As you know, our normal terms require payment within 30 days after the invoice is sent to you.
Since you have established an excellent credit rating with us in the past, we are surprised to see a problem arise at this time. If there is some error, or you are unable to pay the amount due immediately, please contact me so that we can correct the situation or make suitable arrangements for prompt payment of this obligation.
Thank you for your attention to this request.
Very truly yours,
Second Collection Letter
A second letter, 30 days later, might read as follows, if no response has been received from the customer:
Dear Mr. Adams:
We have not received any response from our statements of the last two months nor to our letter of September 15. Your entire account is now 45 days overdue, and you owe us a total of $473.25.
If there is some reason why this payment cannot be made immediately, please contact us so that we can make arrangements that will be mutually agreeable. Perhaps we can work out a payment schedule that would be realistic for your present circumstances.
Naturally, we do not want to endanger your credit rating or destroy the good relationship that we have maintained in the past. Therefore, would you please take care of this obligation immediately so that we will not have to file an unfavorable report with the credit bureau or resort to the use of a collection agency or an attorney.
We have enclosed a self-addressed envelope for your convenience. Please return it as soon as possible with your check for the balance owed.
Very truly yours,
Third Collection Letter
If this is unsuccessful, a stronger letter should be sent in 30 days:
Dear Mr. Adams:
We still have no response from our statements of the past three months nor from the letters that we sent you on September 15 and October 15.
Your entire account is now seriously past due: It is obvious that our efforts to clear the account on a mutually agreeable basis have had no impact. Unless we receive payment from you within seven days, or can work out a mutually agreeable arrangement to discharge this obligation, we will have to report the matter to the retail credit bureau.
Subsequently, the account will be turned over to a collection agency or to our attorneys for further action. Since this is a costly procedure for both of us, and will cause serious damage to your credit rating, I would suggest that you call immediately so that we can clear the matter at once without resorting to such procedures.
Very truly yours,
As you noticed, the tone of each letter became progressively stronger with suggestions of more serious action introduced in each case. The tone that you would want to establish in such "dunning letters" will often depend upon the type of relationship that you maintain with your customers. However, the ground rules should be clear. Past-due accounts should not be ignored.
Frequently, an even more persuasive approach is through use of the telephone. The ground rules are basically the same. You must become progressively firmer with each call and indicate that stronger measures will be used if necessary to ensure prompt payment. The telephone has the added advantage of flexibility since you can be more direct with better knowledge of the individual account. You acquire this knowledge through asking questions such as the following:
- "What seems to be the problem? We never had difficulty with your account in the past."
- "How much would be a reasonable amount for you to pay each month? Perhaps $50, $60?"
- "How soon can we expect payment of this amount?"
Try to avoid questions that can be answered "yes" or "no." If the creditor gives you an answer such as, "I'll mail it today," answer with: "I appreciate that. Then I can expect it in two or three days. If I don't have it by then, I'll call you back." Be sure that the creditor realizes that you are totally aware of the situation and that you do not intend to ignore it. If your own collection efforts fail, there are two courses of action that are left to you - the collection agencies and the courts.
Collection agencies are businesses established to collect past-due accounts receivable on behalf of creditors. The primary advantage that collection agencies offer is their superior knowledge of persuasive collection techniques. Additionally, creditors are usually anxious to clear invoices referred to collection agencies rather than further damage their credit ratings. The collection agency's fee is usually based upon a percentage of each account collected. The percentage ranges from 25% to 50% depending upon the size of the account or the total dollar volume of accounts referred to the agency for collection. This approach, while often effective, can be expensive. A business is committed to paying the agency's fee on any account referred for collection, whether payment is made to the agency or to the business. Although some creditors may resent making payment to a collection agency and prefer to pay the company directly, the company is still committed to pay the fee when the account is collected.
If the collection agency fails, your final recourse is through the courts. The matter may be resolved in a small claims court if the amount owed is small. For larger amounts, you may have to file suit to collect. In either case, you are faced with a costly and time-consuming procedure. The best way of avoiding these time-consuming, costly procedures is to take prompt, strong action on your own as early as possible. In the long run, you will be doing not only yourself a favor but also the creditor. While your creditors may be unhappy at the time, you will have spared them costs, time, and the loss of their credit ratings.
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