Basic Collection Letter

Good collection letters follow a basic format:

First Paragraph: Facts and Terms. Collection letters should always begin with the facts relating to the debt - precise amounts, dates and invoice numbers - and go on to remind the debtor of your Company's Terms of Trading.

Second Paragraph: The Demand. The purpose of a collection letter is to induce the debtor to act in a specific way. Be clear about what action you want - payment of a specific amount by a specified date.

Third Paragraph: Making Allowances. This is optional. Some people like to allow for the fact that payment may already have been made by the time the letter arrives. In my view, it's bad practice. Certainly you should never say, "If payment has been made please ignore this letter" - and "If there is any dispute please contact us" is another no-no. If the debtor has already paid someone will let you know. If there is a genuine dispute someone will say so. In the meantime you shouldn't invite your debtors to ignore you, or encourage them to manufacture disputes to delay payment.

Fourth Paragraph: The Threat. Make it clear that if the debtor does not pay, you will take action. You have potent threats at your command which do not involve taking legal proceedings. You can:

• Put the account on stop.
• Hold orders.
• Withdraw credit facilities.

Your customer may need your goods or services now or in the future - particularly if your Company's product is unique or proprietory, or work in progress is incomplete. Putting the debtor on stop or holding orders can force a debtor to pay immediately, or come up with a reasonable payment plan.

These days withdrawal of credit facilities is a very serious threat indeed. Withdrawal of credit will affect the debtor's credit rating (and so make it difficult to get credit elsewhere) and could end by making it impossible for the business to continue to trade.

Fifth Paragraph: Closing. Use the last paragraph to repeat the demand. Again, be clear about what action you want - payment of a specific amount by a specified date.

Your whole series of collection letters should follow this basic format, differing only as to their increasing strength as time goes on. Your collection effort should be consistent and persistent. Series situations often arise as the result of neglect. Best practice is to e-mail contacts within a week of a missed payment, and to send the first reminder letter by post and e-mail the following week. Other, increasingly strong, letters should follow at 14 day intervals - unless, of course, you are pursuing a habitual delinquent, in which case you should short-circuit your own system and come down hard and early.