COLLECTION LETTERS

Unfortunately, sending an invoice doesn't always result in getting paid. If you're having trouble with slow-paying or non-paying customers, you need to develop a competitive accounts receivable program. One that will enable your business to collect more money, sooner, at less cost, and without losing valued customers.

In commercial collections, you rarely need more than two collection letters - an early collection letter and a final demand letter. The exceptions are:

Bad Check Collection Letter (call or email us for a complimentary sample letter)
Collecting Your Judgment Letter (call or email us for a complimentary sample letter)
The IRS Collection Letter (very aggressive - click IRS Advantage™ for more info)

GET THE IRS TO HELP YOU COLLECT FROM YOUR MOST DELINQUENT ACCOUNTS

A good collection letter will first get their attention and second motivate a response. The best collection letter goes out with an IRS Form W-9 requesting Tax ID information under penalty of federal law. The pre-formatted IRS collection letter uses a powerful combination of accounting principles and debtor psychology. Once your debtor realizes that the IRS could be examining their tax statement a little more closely, you will be surprised how quickly a check will arrive in the mail. Learn more >> The IRS Advantage™ Collection System

COLLECTION LETTERS

Early Collection Letter or Phone Call?

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 collection 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 collection letters and less telephone contact.

Your success rate using a collection letter with the format provided in our first collection letter sample 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. This is because small businesses respond more to collection letters than larger businesses.

What a First Collection Letter Should Do

Your first collection letter should indirectly ask for payment by means of asking for the reason for non-payment. The sample collection letter 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. The first collection 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 collection letter is to not ask for payment, but to ask for the REASON FOR NON-PAYMENT.

Final Demand Letter

When all other collection attempts fail, you have a choice: either let the matter (and your money) go, or take it to court. A written Final Demand Collection Letter is recommended by most small claims courts and required by a few, to file suit.

Keep in mind though that you don’t want to go to court, you want to collect the monies owed. The Final Demand Collection Letter sells the need to pay while it fulfills legal requirements. A good collection letter results in payment in as many as one-third of all cases, probably because the written word is far more powerful than speech at this stage of the game.

Think about the times you found yourself embroiled in a heated collection situation. After exchanging angry words - maybe even a lawsuit threat - what happened? Chances are nothing. For whatever reason, you didn’t pursue the claim.

Things change when you write a final demand collection letter. Lay out the reasons why the other party owes you money. State that, if you fail to get payment, you will go to small claims court or turn the account over to a collection agency. Now, instead of being “just another bill collector voice on the other side of the phone,” you and your claim take on a sobering realness.

The other party must now confront the fact that you won’t simply go away, but plan to have your day in court or unleash agency collectors. They will have to expend time, energy, and money. As long as your position has merit, the chances that the other party will pay all, or at least a portion of what you demand, just went way up.

When you write your Final Demand Collection Letter, keep the following points in mind whether or not you actually intend to follow through with small claims court action. (Refer to the sample collection letter.)

Firm Opening: Grab their attention and get right to the point.
Heavy Language: Nothing sets a serious tone better than a reference in your collection letter to some fine print or legalese in your contract or work order, especially if signed by the customer.
Payment Demand: Say exactly what you want. Ask for a specific amount of money to be paid by a set date, or for some other specific action to be performed.
Consequence: Towards the end of your collection letters, state your intentions and give your customer a potential “out.” (i.e., pay now and preserve your credit rating.)
Close: Be polite and professional, avoid personal attacks. You want the other person to make a business decision: What are my risks of losing? How much time and expense does a defense take? Usually, the other party will decide it makes more sense to compromise.
Enclosure: Enclose a copy of your invoice and/ or work order. In an involved situation, review the history of the dispute. If you do end up in court, the judge or hearing officer who doesn’t know the facts of your situation will read the collection letter.
Mail: Send the collection letter by certified mail. This assures your customer that you mean business and provides a record of receipt.
Fax: Send the collection letter via “Receipt Recorded Fax”. After faxing, print a confirmation report from your fax machine and attach it to your collection letters for proof of delivery.

TECHNICAL TIP: If your debtor is a corporation, mail or fax the final demand collection letter to the Statutory Agent (contact Secretary of State's office to obtain), copying the debtor. If not a corporation, mail or fax the final demand collection letter to an owner or partner, not the manager or clerk. Pull your credit application if you have one on file to find the names of owners, partners, corporate officers, etc. You want MAXIMUM IMPACT, and WHO you send your collection letters to can be more important than WHAT you are sending.

Your Final Demand Collection Letter should contain the following elements:

Firm Opening

Heavy Language

Payment Demand

Consequence

Close

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James O'Brien
Credit Manager
H.A. Metzger, Inc.
www.hametzger.com
"Just wanted to drop you a quick note to let you know how successful your IRS collection technique has been for me. I have used this technique and have gotten positive responses 4 out of 5 times. I usually send a copy of a W-9 form and highlight the cancellation of debt portion in order to show the account that this is for real. It has been a real gem for me on some of those hard accounts that just refuse to pay, until they think that I am informing the IRS of some unreported income. Thanks again and keep up the good work."