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.
Many business owners would rather use the “gentle” approach by first sending a friendly reminder. The idea is this may serve to help “jog” the customer’s memory of the past due bill.
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
Demand letters should never be written in a threatening, harassing or abusive tone. Some delinquent customers may get defensive, perceiving your letter as threatening, even if it wasn’t meant as such. This can have negative consequences, not the least of which is that the customer won’t be in the mood to pay you. It can even result in legal retaliation.
Your collection letters should be worded professionally, with communication that is non-personal, emotional, stay on the point, and communicate clearly that the letter is a reminder of an unpaid debt. This usually proves to be enough of an encouragement to get the customer to pay the bill.
2. Be Accurate
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 Settlements/Arrangements
Some customers may avoid all contact with you, possibly out of embarrassment to admit they’re going through financial straits. A payment plan offered to them might be more financially feasible, with smaller payments.
They could become more cooperative after being offered payment arrangements, because smaller payments are less financially stressful.
4. Late Fees
Some business owners may find that mentioning the prospect of adding a penalty fee on top of any seriously delinquent accounts can become effective. Throughout your demand letter, point out that if an account remains unpaid for a further 14 or 28 days, then the account may incur a penalty fee. Many people will suddenly find enough money to pay their debt rather than face an extra cost on top of the amount they already owe.
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 handling your own debt collections and writing your own demand letters, you cannot imply that a debt collection agency is involved in the collecting.
You also have to exercise caution, that none of your language contains any threatening language of any kind. For instance, you cannot threaten legal action if you’re not actually working with an attorney. You can’t threaten to garnish a debtor’s wages, nor can you imply that you’re working with a government agency to collect your debt.
It is also a federal violation to make your demand letters appear to look as if they came from 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.
David P. Montana has been a prominent marketplace professional, business consultant along with publisher with regard to collection agency solutions for thirty years. He provides extra essential advice and information about Creating an effective demand letter.
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