LETTER WRITING:Collection Letters, Collection Letter Series

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Lesson 25

LETTER WRITING

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.

2. The purpose of the collection process is to maintain Goodwill while collecting what is owed

3. Collection is a sensitive issue

4. The following practices may be avoided

1. Falsely implying that a lawsuit has been filed

2. Contact the debtor's employer or relatives about the debt

3. Communication to the other persons that the person is in debt.

4. Harassing the debtor

5. Using abusive or observe language

6. Using defamatory language

7. Intentionally causing mental stress

8. Threatening violence

9. Communicating by postcard (not confidential enough)

10. Misrepresenting the legal status of the debt

11. Communicating in such a way as to make the receiver physically ill

12. Misrepresenting the message as a government or court document

13. Communicating by postcard (not confidential enough)

14. Misrepresenting the legal status of the debt

15. Communicating in such a way as to make the receiver physically ill

16. Misrepresenting the message as a government or court document

Right attitude for successful collections

· 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

i) Appeal to fairness & justice

ii) Appeal to pride

iii) Appeal to Goodwill

iv) Appeal to sympathy

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

· And 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

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· Present you 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.

Statement of Account / Reminder

(The 1st Step)

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

too early a personal appeal:

Our records indicate that the balance of Rs. 4000/- on your account is now past due. Payment is requested.

(OR)

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 in quickly.

Stage 2

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.

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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

Step 3

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,

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; moreover, 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.

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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,

First Reminder after Monthly Statement

Situation

On February 3, Nursing Home purchases supplies and equipment from Medix. Hospital Supply

Company on thirty-day credit terms. Although the nursing home has been in operation only a short time,

the information concerning the enterprise has been favorable and credit was granted. A regular statement is

mailed on March 10. When no response is received by March 20, a second statement is sent.

First Reminder

MEDIX HOSPITAL SUPPLY COMPANY

CUSTOMERSTATEMENT

Nursing Home

P.OBox888

Lahore

Please send your cheque.

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Date

Invoice #

Items

Amount

February 6

Y-200

Wheel Chairs

6333

Walkers

2432

Hospital garments

1800

Blood Pressure units

2000

Total

Rs.12565

Second Reminder

Situation

Nursing Home makes no response to the first reminder. Ten days later a second reminder is sent.

Second Reminder

This is a copy of the regular statement on which the following message appears at the bottom:

Mr. Jameel: To date, no payments have been received from you, and we're curious to know why? Perhaps it is merely an

oversight. If there are other reasons we should be aware of, please let us know. Otherwise, may we have your cheque for

Rs.50000?

Third Reminder

Situation

Nursing Home still has not responded to the previous reminders. A third reminder is sent ten days

after the second one went out.

Third Reminder

This is a copy of the regular statement on which the following message appears at the bottom:

Mr. Jameel: Is there some reason we have not heard from you? The amount you owe us is now long past due and is

beginning to concern us. Don't you think we are entitled to an explanation? Please let us hear from you at once.

Fourth Reminder-Telephone Call

Situation

The Credit Manager at Medix Hospital Supply Company has heard nothing from Nursing Home and,

on April 3, decides to telephone the owner, Mr. Jameel.

The Telephone Call

When the Credit Manager, reaches Mr. Jameel he may start off something like this:

"Hello, Mr. Jameel. I'm Kamran at Hospital Supply Company, and I'm calling to ask about your plans for paying

your account, which, as you know, is now over 30 days past due."

Jameel is given an opportunity to tell his side of the story (he has just been so busy putting the

nursing home in operation that he had to let some of his paperwork slide.) At the end of the conversation,

Jameel promises to send his cheque right away.

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Fifth Reminder-Telegram

Situation

A week has passed since the credit manager spoke on the telephone with Jameel, and no payment has

been received. She decides that the next step is to send a telegram.

The Telegram

DURING OUR TELEPHONE CONVERSATION ON APRIL 3, YOU PROMISED

IMMEDIATE PAYMENT OF YOUR ACCOUNT. YOUR CHECK HAS NOT ARRIVED, AND IF IT

IS NOT ALREADY IN THE MAIL, I URGE YOU TO SEND IT TODAY.

When The Buyer Is At Fault

Dear Mr. Faheem:

Your balance with Murray's Furniture Warehouse is 120 days past due. Our efforts to collect from you

by mail, fax, and telephone have been fruitless. You still owe Rs. 50,000 of the original Rs. 75000 in

purchases you made on June 8. The last check we received from you was on August 8.

If we do not receive a payment within 10 days, your account will be turned over to Collection Agency

for further handling.

Sincerely,

When The Buyer Is At Fault

Dear Mr. Rashid,

Despite our numerous attempts by letter, telephone, and numerous onsite visits to your restaurant to

collect your past due balance, you have neglected to make any effort in making payments to Florists. Your

restaurant is now Rs. 5000 in arrears. Having broken a series of promises to pay, we cannot trust your word

any longer and must take more serious action.

We have turned your account over to our collection service. They are authorized to use any and all legal

means deemed appropriate to collect your payment.

Sincerely,

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