As a general rule in early collections, a phone call is ten times more effective than a written collection letter. This is mainly because at this stage a two-way dialogue is far more effective than a one-way communication.

But like many rules in collections, there are exceptions:

• You might need to send a first collection letter because you don’t have time to make all your calls that week.

• A letter will be less expensive than long distance calls to small balance out-of-town customers.

• If you do not have trained telephone collectors, it is better to use well-written letters and less telephone contact.

Your success rate using a letter with the format provided at the Stevens & Ricci Resource Center should increase drastically. The smaller the business you are sending it too, the more success you are likely to have. The larger the business, the less success you are likely to have.

What a First Letter Should Do

Your first letter should indirectly ask for payment by means of asking for the reason for non-payment. The sample format letter on the Stevens & Ricci Resource Center gives your customer the benefit of the doubt by asking for the reason for non-payment using check-box style common reasons at the bottom and making demand for a response to the inquiry.

Further, you are adding interest to the total, which gives you instant priority over most other creditors you are competing with for payment. On a judgmental basis, you can put “waived” instead of the interest amount for certain key customers, etc. letters for the most part are trashed and ignored.

The first letter should not directly ask for or demand payment. First, you are assuming that a payment is due. Many times, the customer has put the invoice on hold awaiting your call to discuss something they feel is wrong with your product, service, and/or delivery. In cases like this, most will not contact you –they’ll wait for you to contact them. Unless you know the situation, always give your customer the benefit of the doubt.

The important thing with a first contact letter is to not ask for payment, but to ask for the REASON FOR NON-PAYMENT.

Refer to the sample First Collection Letter. It identifies a problem, asks for a resolution or other information and provides a check-box style for replying.

This letter can be customized to fit the particulars of your business. You may want to add checkbox reasons for non-payment based on the more common excuses you receive in your business or industry. The sample letter can be downloaded onto your computer in MS Word at which point you can add your company’s logo and information.

It is generally assumed that a phone call is considered the best first contact when a customer becomes overdue. Unfortunately, phone contact carries with it a lot of time and effort. The seemingly endless calling, being left on hold, leaving messages, returning messages, etc. that is inherent in this method distracts from the core effort of running the business.

However, it is possible to use a collection letter as the first contact, and get results similar to phone contact, but without the cost and time involved with using the phone.

The letter just needs a few important components.

First, treat the first collection letter as a request to the customer to explain why the payment is late and make your request for payment a secondary concern.

This does two things:

(1) It gives the customer the benefit of the doubt and suggests your interest in the customer is more than the value of the invoice. It leads the customer to believe you hold a genuine interest in their financial health.

(2) Some customers may have been holding off on payment in order to discuss a dissatisfaction with the product, service, or delivery. In cases like this, the customer will not contact you and instead will wait until you contact them. Again, it gives the customer the benefit of the doubt and treats them with the courtesy to which they are entitled.

Secondly, the first collection letter should provide an easy way for the customer to answer your inquiry.

An effective way to do this is to place a checkbox at the bottom of the letter with a list of the most common reasons for late payments. The customer is invited to mark the appropriate box and then return that portion of the letter to you. The point is to invite the customer to act and open a dialogue with you about the account.

Note if your business has an interactive website where customers can pay their bill online, it is very easy to set up an electronic version of the checkbox that can instantly beam the customer’s response directly to you via email.

If that is the case, the bottom of the letter should include a simple URL (”web address”) that the customer can go to give the requested feedback. Preferably, the electronic checkbox should be accessible from within the customer’s already existing online account.

Finally, place the invoice information at the top of the letter in the subject field and leave it out of the body of the letter.

This reinforces that this letter is a courteous reminder of an amount owed rather than a “demand” for payment. Remember, at this stage of collections, your contact with the customer is focused on being cordial and helpful.

To get an idea of what your letter should look like, a sample first collection letter with all of these elements can be downloaded at the Stevens & Ricci Resource Center. Link >> http://www.stevensricci.com/tools_products.html

Conclusion

If you apply the elements described above to your first collection letter, you should see a dramatic increase in the effectiveness of your collection efforts, while saving time and money over traditional telephone contacts.