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Payment Collections Letter

By 28 April 2022May 8th, 2022No Comments
banking customer engagement

Introduction to Payment Collection Letters

Business deals are formed based on buying and selling terms between two parties. There are two major forms of business deals or sales, i.e., cash basis and credit basis. When the business deals are based on credit sales, sending payment request letters or collection letters arises.

Collection letters refer to the notification send in written form to inform the consumer of his/her past due to payments. The collection letters are sent when the debtor defaults or delays the payment for reasons unknown. Such cases are a common theme of the credit policy business. But since businesses can’t shut down the entire credit sales policy due to a few such occurrences, they rely on the payment collections letter to intimate the debtor and recover the amount.
The payment collections letters are sent in a series ranging from 1 to 4 written letters starting with a reminder letter to the final warning letter indicating the pursue of legal action against the debtor.

print and mail collection letters

When to Use a Collection Letter

The term collection refers to the process that invariably begins once you send an invoice to the buyer or the debtor. The invoice duly sent by the seller or creditor contains different aspects like the total amount due to be paid along with the due date of payment. The creditor is advised to make the payment within the due date. However, if the debtor fails to make the payment within the stipulated time, then the follow-up process begins with a collection letter.

Businesses first tend to intimate the debtor about the due amount via emails and telephonic contact. Upon failing to contact the debtor via these channels, they proceed with the collection letter. The collection letter first starts with a reminder letter at first and continues to progress further with the second, third, and fourth, and final collection letter if the payment is not made within the timeframe.

Benefits of Using Payment Collections Letter

Using a payment collections letter can help benefit you in many ways. Here are some of them:

1. Basis for Legal Protection

As of today, numerous laws and regulations govern customer rights. Any creditor who has the right knowledge of the law may find a way to disregard your payment notifications. During such times, using a payment collection letter provides a basis for legal protection. Payment collection letters can be provided as evidence to the court during the case for a default payment. This makes them great legal evidence to have.

2. Documentation for Future Reference

A payment collection letter is sent out when the debtor fails to respond to the payment due date and ignores any impending calls or notifications for the same. Sending out a payment collection letter will help create a file with the details about the debtor for any future reference if needed. This will also help you to showcase data regarding the bad debts and represent the same for a tax deduction. The Internal Revenue Service (IRS) mandates that a company should utilize all means of debt recovery before claiming it as a deduction. Issuing a payment collection letter represents that you had tried all options available to you.

3. People Tend to Pay Faster

It is seen that the amount of payment recovery is higher with the issuance of payment collection letters than without it. The payment collection letter means that the debtor has neglected the intimation from the seller’s or creditor’s side and has not responded to the payment schedule decided previously. Such a scenario represents a negative marking on the debtor as the letter can decrease the debtor’s credit score. Such a threat to their credit score entices a debtor to clear off the payment quickly.

4. Flexibility

The thing about the payment collection letter is that you can issue the same from your side to the debtor or else call upon the services of a debt collection agency that will send the letter and handle the recovery on your behalf. Sending a payment collection letter becomes a flexible term with such options. You can use either vest in your efforts or use service providers who deal in such cases giving you a flexible option.

Features and Characteristics of Payment Collections Letter

Here are some of the distinct characteristics and features of a collection letter:

  • Names of Parties: The collection letter contains the names of parties involved, i.e., debtor, creditor, and the debt collection agency. The letter contains the registered name and details regarding the parties.
  • Series of the Letter: Since payment collection letters have a series starting from a reminder to the final warning letter, any letter to be sent to the debtor needs to be marked with the series order. If the letter is the first one in the series, it will be designated as the reminder letter going up to the inquiry letter, urgency letter, and warning letter for the next letter in the series, respectively.
  • Objective and Rationale: Any payment collection letter sent to a customer or debtor contains the objective or rationale behind sending it. The letter states the intention of sending a written notification is to remind them of the unpaid dues and entice them to make the payment as soon as possible.
  • References to Past Letter: If the collection letter is sent in a series with each new one preceding the old one, then the new letter should contain a reference to the old letter.
  • Use of Registered Post: The sender of the payment collection letter uses a registered post for the delivery of the letters. This helps in gaining an acknowledgment from the customer. The same can be used in the court during a case to confront the denial or lost letter from the customer or debtor.
sending direct mails

Who Can Send the Payment Collection Letter?

As per the business’s normal course, the seller or the original creditor to the deal will send a payment collection letter to the debtor. However, the creditor can also avail services of a debt collection agency who will then send the documents on behalf of the creditor. A debt collection agency also has the right to purchase the default profiles from the original creditor. Doing so will allow the debt collection agency to become the owner of the debt, and they will further proceed to recover the amount via payment collection letters.

Information to Include in a Collection Letter

There are different information fields and data that should be mentioned in a collection letter. This data and information help to relay the details about the parties involved and the payment terms between them. It is of utmost importance that a collection letter contains these mandatary information fields as it helps to enact the letter as court evidence during the recovery case.

The information required to be included in a collection letter varies according to the type of collection letter issued. The information that may be present in the first collection letter may not be necessarily present in the second letter or the last letter. There are a few important pieces of information that are included in the letters irrespective of their series number. Here are those important fields of data:

  • Initial due date of payment
  • Days past the due date
  • Total due amount
  • Previous attempts of collection of payment
  • Summary of account of the debtor
  • Instruction and guidelines for the debtor
  • Revised due date of payment
  • Means of contact

Types of Payment Collection Letters

The payment collection letters are often segregated into different categories based on reminding, inquiring, and requesting the payment. The major criterion here is the demand letters and the warning letters. The demand letters are the ones that are sent to inform the debtor about the payment. These can also be referred to as the appeal letters. If the debtor does not respond or pay the due amount, then warning letters are sent. These letters act as the final precursor before legal action is taken.

To be specific, there are four different payment collection letters sent to a user requesting the due amount, after which the creditor undertakes the legal actions. The letters start with a friendly tone at the start before increasing the level of strictness with each letter. A debtor’s rights specify that any seller or creditor should provide a proper reminder to the debtor for the repayment of the due amount. That is the reason why the letters start with the standard tone.

The letters have different templates for each one with different tones, marking, and presentation. However, certain similarity remains in each of the letters like the marked deadline for repayment, the due date for settlement, terms, and conditions for repayment, and any feasible action taken in the course of non-repayment of the due amount.

Below mentioned are the different types of letters underpayment collection letters and the details regarding them:

The First Collection Letter

The first collection letter is known to be the first instance of notification sent out to the debtor for the matters contained in the business terms and delay in payment. This is often in the form of a notice and should be written in a friendly tone. The first collection note or letter assumes that the debtor has failed to remember the due date for payment, and hence reminding him of the debt is the first thing to do. This is why the wordings are often kept subtle and formal without trying to sound offensive or derogatory to the receiver of the letter.
The letters should be sent right after the invoice date has gone due. The letters should contain a formal request and reminder of the due date of payment’s lapse and intimate the receiver to revert with their remarks on the payment cycle and the timeline when they can make the payment. Keeping the tone friendly and formal can help you maintain a good relationship with your customer and retain the clientele. It is mandated that at least a week should be awaited after sending the first letter before proceeding with the second one.

Here’s a list of things that you should include with your first collection letter:

  • The number of days past the due date
  • The amount due on behalf of the debtor
  • Summary of accounts and details regarding the deal between seller and buyer
  • Any previous attempts at the collection of the due amount
  • Suggestion and instructions for debtor on how to proceed next
  • Revised due date of payment
  • Contact details for future contact and revert back

The Second Collection letter

The second collection letter is another instance of a payment collection letter sent out after the first letter. This letter remarks the assumption that the clientele has chosen not to respond to the first collection letter, and hence providing an assertive second note is the right way to go. This is also part of the demand letters and is written with a balanced tone. The letter is stricter than the first one, yet it does not lose the friendly and formal tone.

The second letter is often sent four weeks or thirty days after sending the first collection letter. The one week or two-week period is deemed an average waiting period in business deals for the customer to revert. In the absence of such a revert back from the customer, sending out a second letter is warranted from the creditor’s end.

Here are the details that should be included in the second collection letter:

  • The number of days past the due date
  • Original invoice date of the deal
  • Date of first collection letter
  • Details of any other previous collection efforts from creditor
  • Invoice amount and penalties (If any applicable)
  • Suggestions and advice to the creditor
  • Revised payment structure
  • Revised due date
  • Notification regarding the impact of non-payment for the creditor
  • Contact details of the creditor

The Third Collection Letter

The use of third collection letters occurs in a situation when the first two letters receive no revert back or feedback from the debtor. Sending out a third collection letter is often a final dash attempt to entice the customer to pay the due amount without enforcing any legal terms. It is sent 60 days after the lapse of the due date. The letters have a different tone than the previous two collection notes and should be crafted properly. The wordings will be stricter though the entire letter will continue remaining professional.

Sending out a third collection also creates an assumption that collecting the due amount in full entirety might be an issue for the creditor. Here’s what you should look to incorporate in your third collection letter:

  • Invoice number and due amount
  • Days past the due date
  • Date of first and second collection letter
  • Any other attempts at the collection of the debt
  • Advice and suggestion to the debtor regarding the next steps
  • Revised due date of payment
  • Revised amount of payment including penalty if any
  • A warning of the consequences that may result in the absence of non-payment
  • Contact details of the seller

The Final Collection Letter

Reaching this stage of the collection is generally deemed as an exhaustion of all attempts for recovering the amount from the customer. Once you have sent out the third letter to the customer for the recovery of dues, the steps for sending the demand letter are over. The next step after this is to issue a warning letter. Warning letter contains the terms for recovery of the due amount via the use of legal means from the customer. The letter is short and crisp in comparison to the previous three past due to collection letters.

The wordings used in the fourth and the final collection letter are strict and are done to inform the customer that the account is handed over to a legal team or collection agency who will further instigate the matter ahead for recovery. It also states that the customer will be liable for any bearings and charges pressed upon them. However, the letter will also contain a revised due date for the repayment of the dues to stop any legal proceedings.

How to Write Payment Collections Letters?

Although collection letters are meant to be a measure against the debtors, certain mandates need to be fulfilled while writing them. The laws regarding the collection documents mention the compliance-based rules to be followed, as stated in the air Debt Collection Practices Act (FDCPA). It says the wordings, tone, pattern, and the information that need to be contained therein in the letter.

Here’s a brief on how to write the letter that stands in line with the law’s compliance norms and still enforces the view on the customer to make the timely payment.

How to Write the First Collections Letter

The first collection letter should be sent right once the invoice date goes due. Preparing a first collection letter is one of the major agendas to remind the customers of the dues and recover the same. Also, as a sender, preparing a collection letter for the client who has recently defaulted on the payment and the one who is frequently defaulting on the same should be different. Here’s a sample letter for collection of payment:

Sample Template for the First Collection Letter

Dear [Name],

This is a friendly reminder for your account named _____ maintained with us. According to our financial records, your account has an outstanding balance of $____ as of present. We have previously sent an email regarding the impending date of payment. However, if you have not received the same, we have provided the account summary of your holdings with us maintained in our ledger:

Invoice Number:
Invoice Date:
Due Date of Invoice:
Due Amount:
Days past due date:

We would like to request you to take a look at your account and let us know the payment status. If the payment has been issued, duly contact us at below provided contact address. If the same has not been issued, we would appreciate it if you can send us the due payment of balance $___ for your account by ____.

XYZ Company
ATTN: Accounting Department
11 Main Street

As always, we value you as an esteemed customer and look forward to continued long-term collaboration.

Sincerely,
ABC
XYZ Company

How to Write the Second Collection Letter

The first collection note or letter is often deemed as a friendly reminder for the customer to let them know about the lapse of the due date of payment for the invoice. The first collection letter you send to your customer aims to intimate the customer and let them know of their due payment. There are two likely outcomes of the first collection letter, i.e., the customer pays off the dues or completely ignores the payment. The second collection letter is meant to be a step taken in the case of the second case scenario.

The second collection letter is sent after four weeks or thirty days since the due date’s lapse. The tone and wordings slightly vary from the first one, but the use of formal and professional words is still mandated. Here’s a sample of the second collection letter:

Sample Template for the Second Collection Letter

Dear [Name],

We value your association with our company but are concerned with the current status of your accounts. As brought into light previously with a letter dated _____, we had mentioned the account’s status going past the due date. Your account with us showcases an outstanding balance of $____ as of present. We have neither received any payment or intimation of payment to be made from your end.

We would like to help you from our end with options for arranging a possible payment means so that your credit rating and scores are intact and no damage to the same is done. Please get in touch with us via the contact details provided down below to work out mutually possible outcomes for your account.

You can make the due payment of $____ for your account by ____. We accept credit cards, online payments, and checks for payment should you desire.

We hope that the payment is duly made and there’s no disruption in our business relationship.

Sincerely,
ABC
XYZ Company

How to Write the Third Collection Letter

The third collection letter is something that you’ll draw up only when the previous two letters come unanswered by the customer. The rationale behind sending the third collection letter is to send it sixty days from the lapse of the due date. If you stumble upon the third letter, then the chances of collecting the payment in its entirety are getting slimmer day by day.
The third collection letter or past due collection letter is the last formal appeal to the debtor to make the payment before the legal initiative is pressed upon. The letter should include specific details regarding the invoice and the means to make the payment within the revised due date. Do try to keep the tone to a professional mark for the letter. Here’s how you can do so by following this collection letter template:

Sample Template for the Third Collection Letter

Dear [Name],

Until now, we have still not heard from you or received any payment towards the due amount of your account maintained with us. We have attempted numerous tries to contact you via call and emails. However, the attempts are unanswered. We kindly request you to make the payment of $___ for your account ____ running due for ____ days for the Invoice number _______.

Kindly proceed to make the payment in full by the end of the day. We also offer you a mutually agreeable revised date for payment if you contact us by the end of the day.

We look forward to hearing from you, in the absence of which, we shall be compelled to report the same to a credit agency that may harm your credit ratings and affect your future business endeavors with us.

Sincerely,
ABC
XYZ Company

How to Write the Fourth Collections Letter

The fourth collection letter is the last resort option and the beginning of the appeal letter to collect past dues. It is sent when the third letter also does not get a response from the debtor. The fourth collection letter is also known as the final collection letter and has an assertive tone in comparison to the previous three collection letters.

The fourth collection letter is an assumption that the debtor is trying to skip the payment. Hence, taking a final call is warranted as you have already exhausted all your options for recovery. With the fourth and final collection letter, you should provide the debtor a full and final opportunity to make the due payment and stand assertive and provide evidence that any lack of payment this time would mean legal implications. The fourth collection letter is sent after seventy-five days of the lapse of the due date. Here’s a fourth collection letter sample for you:

Sample Template for the Fourth Collection Letter

Dear [Name],

This is a final call and warning letter for the collection of past dues for your account. We have still not heard from you in regards to your invoice amount of $_____ dated ____. We have tried numerous phone calls and emails for the same and yet not received a response from your side. Our collection letters sent to you dated ______, ______, and ______ were not reverted.

We need to hear from you by _____, after which the account will proceed for legal actions. We regret to inform you that in the absence of reversal from your side to this letter, we will be compelled to hand over your account to a collection agency and issue the same to the credit agency who will proceed to decrease your credit score.

We expect the full payment to be made by ______ or we will have no choice but to report your account.

Sincerely,
ABC
XYZ Company

Do's & Don'ts of Writing a Collection Letter

The entire concept of writing a collection letter is to entice the customer to make the payment. But in hindsight, it also looks into the aspect of retaining the business terms and relationship with the customer. Writing a collection letter in a harsh tone may induce fear in the customer, and even if they make the payment, you’ll lose out on future deals. There are certain norms to adhere to for protecting your business and not dropping down to harassing the customers.

Here’s a list of some dos and don’ts you need to take care of while writing a past due collection letter:

Dos

  • Always maintain the tone at a professional standard.
  • Try to advise and suggest to the customer to find new ways to help them make the payment.
  • Assume that the customer will make the payment and may have forgotten the due date
  • Try to contact the customer via email or calls before you send out the first collection letter.
  • Try to come across as a seller who values the relationship with the customer.

Don’ts

  • Do not engage in using harsh words or language with the letters.
  • Do not contact the customer via social media or text.
  • Do not start your assertion right from the first letter.

Wrapping Up

Many business organizations have a massive volume of business deals ongoing now and then. These also tend to give rise to payment defaults. Collection letters have become part of the business organization and are vital to their attempts to recover the client’s payment. Printing and issuing such a high volume of collection letters can be hectic and tedious. Besides, it will increase operational costs.

With PostGrid‘s letter API and platform, you can easily print out collection letters, notices, postcards, cheques, and much more. You can further use the printing and mailing service to print and send out the collection letters to the required destination. PostGrid’s intuitive dashboard also allows you customization options with varieties of templates and sample letters on offer.

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