Internal Credit Control - Collection by Letter
Letters are a basic collection technique used by nearly all credit grantors to collect past-due accounts. They are usually the first approach to a debtor.
It is sometimes beneficial to bring the sales manager into this step of the collection program. Information concerning the delinquency can often be obtained from the sales manager.
The number of collection letters in a series should be kept to a minimum. Experienced commercial credit grantors have found that there is a point of diminishing returns that is generally reached after the first letter goes unanswered.
The reason for a limited series is that letters are one-way communication. Letters can only attempt to motivate a customer to pay the debt. A letter usually cannot uncover the customer’s reason for nonpayment though it must subtly ask, "Why is this not paid?" while asking for payment in full.
Tips for Collection Letters: When writing collection letters, these points should be considered:
- Include all basic information. The letter should state how and when you expect payment. It should suggest why the account should be paid in full. It should motivate the debtor to actually do this—now.
- Use an effective style of writing. Most collection letters are written to appeal to the writer and not necessarily to the delinquent customer. Appeal to the debtor.
- Use the "you" approach. Too many letters emphasize "we." Avoid such phrases as "we insist," "we remind" and "we want." It is much better to put the customer into the letter, saying such things as "you will appreciate" and "it is to your advantage." Remember that the debtor is not interested in your best interest, but in their own.
- Don’t say, "We will not write again." This assures the debtor of their success in evading payment, and a phrase such as "to keep your good credit rating" may be impractical in a situation that has reached a certain stage of collection.
- Use motivating factors. If a customer has not paid, there is a reason for it. Although a letter cannot discover the reason, it can give the customer a way in which they will benefit. For example, by paying now, they may continue to enjoy "open account" terms.
- Appeal to pride, honesty and security. As a last resort, appeal to anxiety. These are factors that can be used to bring prompt payments.
- Address the letter to an individual. Direct it to the person who is authorized to initiate payments. Keep the letter short. Be as brief as possible, and cover only the most important points.
- Sign the letter personally. Do this even if it is a form letter.
Ideas for Collection Letters
Your first collection letter could be this brief message:
Your account is seriously past due. Please send your check by return mail. Failure to make payment will prevent us from authorizing additional purchases to your company’s account.
Ten days later, if you have not heard from the account, something like this could be sent:
Our previous letter to your company regarding its overdue account has gone unanswered. It is essential that you immediately send payment in full or send a substantial payment with a firm arrangement for the balance. Failure to respond to this request will force us to take additional collection action which may prove costly for your company.
If a third letter is needed, it could be sent 10 days later and contain wording similar to this:
Unless payment of this seriously past due balance is received by (give date, about 10 days from the date of the letter), your account will be referred out of this office for final collection action. So your account with us can remain open and so that additional costs will not be charged to your company, it is extremely important that you respond to this letter today.
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