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Effective Payment Collection Letter

Every business enterprise primary goal is to earn a profit. Many business owners never send out collection letters because they don't know how to write one or don't know how to write one that doesn't alienate their customer. No big surprise, but what is surprising is how many owners do not take the job of collecting their outstanding accounts receivable seriously.

Collection letters should do two things: help you get paid and maintain customer goodwill. You know a letter is working when you send out a batch of letters and your phone rings off the hook or payments start arriving. If you send out a batch of letters and there is no response, you need to write a new letter.

The most effective letters are to the point, short and easy to read. Avoid using long or confusing words and sentences. A direct letter reduces misunderstandings. Letter is a reflection of your business, so keep it professional.

Your letter should:

  • explain the reason for the letter in the first sentence
  • explain more about the first sentence in your second sentence
  • suggest a solution
  • thank the recipient

Remember, the purpose of the letter is to persuade someone to send you money. Precise wording and tone are critical, especially if this is a customer you want to continue doing business with. Always assume the customer will pay. Enclosing a pre-addressed envelope for payment is a good idea. The easier you make it for the customer to make the payment, the better your chances of getting paid. If you include postage on the payment envelope, then it’s even better.

Ideally, writing a collection letter accomplishes two goals which makes writing an effective collection letter a balancing act worthy of the most daring tightrope walker.

  • You get paid
  • You retain your customer’s goodwill.

Here are some tips to keep in mind.

Get the facts straight.
Before you start writing, gather all the pertinent facts about the invoice and debt: what was purchased and when, how much is owed, what the due date was, what the payment terms are, and so on. State the facts in your letter clearly and without emotion or threatening language 0r inflammatory.

Use your tone carefully.
This is where the balancing act comes in, because you must communicate the need for payment while at the same time not offending or angering the customer. Be as positive and no threatening as possible, especially with your first letter, because there may be a simple and innocent reason for nonpayment. Be ready to increase the firmness of your tone, however, if you have to write subsequent letters.

Use the proper style and format.
Collection letters should be brief and to the point -- no longer than one page, using short sentences and direct language. Address the recipient by name, sign the letter personally, and stamp the envelope “Confidential.”

Deliver your letter via multiple channels.
You don’t have to rely only on regular snail mail for delivery of your collection letters. Also consider sending them via e-mail or even certified letter or courier if you want to convey a greater sense of urgency.

Create collection letter templates.
Prepare several standard collection letters ahead of time and ask your attorney to review them so they’re ready to send when needed. You could have three separate letters that your accounts receivable department sends out at different past-due intervals -- at 10, 20, and 30 days past due.

Make it easy for the customer to pay.
Include in your letter any and all information the customer needs to make payment: payment and invoice reference numbers; your mailing address, phone, and fax numbers, and e-mail address; and even a postage-paid return envelope.

Consider offering prompt-pay discounts.
While it may be too late for a customer to receive a prompt-payment discount on the outstanding amount due, consider offering such a discount on future purchases. Prompt-pay discounts usually offer customers a 2 percent discount if the invoice is paid in 10 days, rather than the standard 30. Explain this in your collection letter to incentive the customer to pay not just on time in the future, but early.

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