If your business is responsible for its own in house debt collections, you already understand the need to send out demand letters to late-paying customers from time to time.
Most business owners opt for the gentle option of sending a friendly reminder notice to act as their collection letter, hoping that payment has simply slipped the customers mind temporarily.
While these can have varying degrees of success, they can still be improved upon by learning a few tips to help you write a more effective demand letter. This will encourage your customers to pay you sooner, rather than later.
1. Professional Wording
Your demand letters should never contain any harassing, threatening or abusive language. Nor should it even imply threats. Some customers might become defensive if they perceive they're being threatened. Whether or not you meant to threaten, if interpreted as such, it can result in possible legal retaliation. At the very least, it will not put them in the mood to want to pay you.
Always keep your collection letters professionally worded so that your customer is reminded of their unpaid debt and encouraged to pay. The gentle encouragement is usually enough to reassure your customers that theyre not being attacked and many will find a way to pay their debt.
2. Be Exact
The demand letter should state the exact amount that is past due, and when payment was due. You can also remind them of the services or products purchased. Keep your letters to the point and succinct.
3. Payment Plan
If you notice that some customers are avoiding contact, it is possible to introduce the concept of entering into a payment plan arrangement. Youre effectively asking the customer to pay even a small portion of their unpaid debt to help reduce the amount they owe over time.
They could become more cooperative after being offered payment arrangements, because smaller payments are less financially stressful.
4. Penalty Fees
Mentioning the possibility of late fees or penalties might be a further incentive for some customers to pay. Your demand letters could mention tacking on additional late fees if the account continues to remain delinquent. Faced with the possibilities of still more fees, some customers will find the money needed to pay the debt.
These suggestions can increase the cash flow to your business, by receiving smaller payments over a period of time. They will also encourage your late-paying customers to pay their past due accounts.
If you're writing your own demand letters and handling your own collections internally, you cannot in any way imply that an outside collection agency is involved in your collecting.
You should also be careful not to use wording that can imply a threat of any form, nor can you use any form of deception in your letters. This means you may not imply that the customer could be facing legal action or that youre working with a government department to recover debt. Youre also not allowed to imply the threat of garnishing a customers wages to recover debt.
It also violates federal statutes to make your demand letters look "official", and like they've been written by any federal or state agency, or from a court.
Use a professional tone in your writing, using your own regular business stationary. Generally, you should send two demand letters, spaced about 30 days apart. If these aren't proving to be successful, perhaps it may be time to think of alternative debt collection methods, including hiring outside collection agencies to help you with your collections.
Most business owners opt for the gentle option of sending a friendly reminder notice to act as their collection letter, hoping that payment has simply slipped the customers mind temporarily.
While these can have varying degrees of success, they can still be improved upon by learning a few tips to help you write a more effective demand letter. This will encourage your customers to pay you sooner, rather than later.
1. Professional Wording
Your demand letters should never contain any harassing, threatening or abusive language. Nor should it even imply threats. Some customers might become defensive if they perceive they're being threatened. Whether or not you meant to threaten, if interpreted as such, it can result in possible legal retaliation. At the very least, it will not put them in the mood to want to pay you.
Always keep your collection letters professionally worded so that your customer is reminded of their unpaid debt and encouraged to pay. The gentle encouragement is usually enough to reassure your customers that theyre not being attacked and many will find a way to pay their debt.
2. Be Exact
The demand letter should state the exact amount that is past due, and when payment was due. You can also remind them of the services or products purchased. Keep your letters to the point and succinct.
3. Payment Plan
If you notice that some customers are avoiding contact, it is possible to introduce the concept of entering into a payment plan arrangement. Youre effectively asking the customer to pay even a small portion of their unpaid debt to help reduce the amount they owe over time.
They could become more cooperative after being offered payment arrangements, because smaller payments are less financially stressful.
4. Penalty Fees
Mentioning the possibility of late fees or penalties might be a further incentive for some customers to pay. Your demand letters could mention tacking on additional late fees if the account continues to remain delinquent. Faced with the possibilities of still more fees, some customers will find the money needed to pay the debt.
These suggestions can increase the cash flow to your business, by receiving smaller payments over a period of time. They will also encourage your late-paying customers to pay their past due accounts.
If you're writing your own demand letters and handling your own collections internally, you cannot in any way imply that an outside collection agency is involved in your collecting.
You should also be careful not to use wording that can imply a threat of any form, nor can you use any form of deception in your letters. This means you may not imply that the customer could be facing legal action or that youre working with a government department to recover debt. Youre also not allowed to imply the threat of garnishing a customers wages to recover debt.
It also violates federal statutes to make your demand letters look "official", and like they've been written by any federal or state agency, or from a court.
Use a professional tone in your writing, using your own regular business stationary. Generally, you should send two demand letters, spaced about 30 days apart. If these aren't proving to be successful, perhaps it may be time to think of alternative debt collection methods, including hiring outside collection agencies to help you with your collections.
About the Author:
David P. Montana has been a renowned industry expert, business advisor and author in collection agencies services for three decades. He offers more helpful tips and resources on writing an effective demand letter.
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