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 businesses prefer to use the "gentle" approach by sending a friendly reminder. The hope is that the customer may have simply forgotten about owing the bill, and that this reminder will help them to remember.
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. Careful Professional Wording
Your demand letter should never contain any kind of threatening language or terms that can imply threats. People can become very defensive if they feel they are being attacked, whether its rightful or not. This defensiveness can often become retaliation and prompt them to become even more stubborn about not paying your unpaid bills.
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
Demand letters should clearly state the exact amount that is late and past due, as well as when payment was due. It can be good to also remind them of the products or services originally purchased. These letters should be succinct and brief.
3. Payment Settlements/Arrangements
If some customers are avoiding all contact, you might want to offer a payment arrangement. They might be ashamed of admitting financial difficulties, and a payment plan with smaller payments over time might be more financially manageable for your customer.
Smaller amounts of money tend to become less overwhelming to a customer suffering from financial distress and they may become more cooperative because of this.
4. Penalty 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 care that none of your wording implies any kind of threat. You also cannot use any kind of deception in your letters. For example, you cannot insinuate or threaten legal action if you are not working with an attorney. You also can't imply that you're working with any government agency to recover your debt. Neither can you threaten to garnish a customer's wages.
Its also a violation of federal statutes to try to make your demand letter look like its been written and sent by a state or federal 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 businesses prefer to use the "gentle" approach by sending a friendly reminder. The hope is that the customer may have simply forgotten about owing the bill, and that this reminder will help them to remember.
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. Careful Professional Wording
Your demand letter should never contain any kind of threatening language or terms that can imply threats. People can become very defensive if they feel they are being attacked, whether its rightful or not. This defensiveness can often become retaliation and prompt them to become even more stubborn about not paying your unpaid bills.
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
Demand letters should clearly state the exact amount that is late and past due, as well as when payment was due. It can be good to also remind them of the products or services originally purchased. These letters should be succinct and brief.
3. Payment Settlements/Arrangements
If some customers are avoiding all contact, you might want to offer a payment arrangement. They might be ashamed of admitting financial difficulties, and a payment plan with smaller payments over time might be more financially manageable for your customer.
Smaller amounts of money tend to become less overwhelming to a customer suffering from financial distress and they may become more cooperative because of this.
4. Penalty 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 care that none of your wording implies any kind of threat. You also cannot use any kind of deception in your letters. For example, you cannot insinuate or threaten legal action if you are not working with an attorney. You also can't imply that you're working with any government agency to recover your debt. Neither can you threaten to garnish a customer's wages.
Its also a violation of federal statutes to try to make your demand letter look like its been written and sent by a state or federal 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 recognized industry expert, business consultant and writer in collection agencies services for three decades. He provides more valuable tips and resources on writing an effective demand letter.
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