How do I write a debt collection letter? File Samples

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    How do I write a debt collection letter? Simple swipe file samples for your small business

    If you find yourself having to write a debt collection letter, you're not in an enviable position. The only person worse off is the recipient of the debt collection letter you're about to send. But we're here to make your position that much easier by providing you with convenient step-by-step guidance on writing the letter, without antagonising or alienating your customer in the process. Let's begin.

    What is the point of the debt collection letter?

    Well, to get your hands on your hard-earned money of course! But, there are quite a few more nuanced intricacies to the debt collection letter - or letter of demand as it's sometimes known. So, to answer your original question, a debt collection letter serves to:

    • Inform debtors that they owe you money: This is the most straightforward reason and is a way to put, in writing, that the debt exists, an amount is owed, and that you would effectively like it to be paid by the due date. Remember, paying an invoice could simply have slipped your client's mind rather than being something they're trying to avoid, so often a gentle nudge is all that's needed.
    • Establishing a payment process: If your customer has not paid the outstanding amount, they might be experiencing a cash flow issue. In this case, a debt collection letter could offer a proposed payment plan so that you get your money, even if it's not all at once.
    • Inform about legal proceedings: When all letters and agreements have been sent but completely dismissed and your only recourse is to initiate legal proceedings.

    What are the types of debt collection letters?

    Now that you know why you're compiling the debt collection letter, you're able to decide on the format to work with. Below is a really helpful overview of the types of debt collection letters you can write, depending on the situation.

    1. Reminder letter

    This is sometimes referred to as a 'soft letter' and is generally the initial reminder that you have sent the invoice through and an amount is still owing. Hopefully, only one reminder letter is required but it can sometimes take up to three before you need to initiate legal proceedings. The reminder letter is often sent 14 days after the invoice's due date based on the assumption that the debtor has forgotten to make the payment.

    Letter sample #1:
    [Include your business name]
    [Include your address]

    [Recipient's name]
    [Recipient's business name]
    [Recipient's address]

    [Date]
    RE: Unpaid invoice # [Include invoice reference number]

    Dear [Recipient's name],

    The above/attached invoice for [outstanding amount] has recently become overdue for payment. As such, we would appreciate you making this payment as soon as possible.

    If there is an error on our part and payment has been made, please get in touch so that the matter can be rectified as a matter of urgency.

    Alternatively, if there is any problem with regards to settling the amount owing, contact us so that we can arrange an alternative payment plan.

    Yours sincerely,

    [Your name]
    [Your position]

    2. Inquiry letter

    This is where it gets trickier because you've sent a reminder and received no response. However, you're not sure if they have simply missed the letter and - in the interest of retaining good business relations - you don't want to come in too tough. Keep the tone firm but not rude, and hopefully, this will prompt a payment.

    Letter sample #2:
    [Include your business name]
    [Include your address]

    [Recipient's name]
    [Recipient's business name]
    [Recipient's address]

    [Date]
    RE: Unpaid invoice # [Include invoice reference number]

    Dear [Recipient's name],

    This letter is another reminder that the amount of [include outstanding amount] due on [include due date] remains unpaid. Please send us your payment as soon as possible / within XXXX days from the date at the top of this letter [include payment instructions].

    We look forward to continuing our business relationship with you, but cannot proceed with any new agreements until this amount is paid.

    If you have already made this payment, please contact us at [include contact details] to rectify this matter. We apologise for any inconvenience this may cause.

    Yours sincerely,

    [Your name]
    [Your position]

     

    Letter sample #3:
    [Include your business name]
    [Include your address]

    [Recipient's name]
    [Recipient's business name]
    [Recipient's address]

    [Date]
    RE: Unpaid invoice # [Include invoice reference number]

    Dear [Recipient's name],

    The attached invoice for [include amount] remains unpaid despite our previous reminder. As such, we would appreciate you making this payment as soon as possible.

    We do value your business but regret we are unable to continue providing [include goods or services] on credit until the full amount is paid. If there was a problem with the [goods or services supplied], please contact us as a matter of urgency so that the matter can be rectified.

    Alternatively, if there is a problem in paying the outstanding amount, we're happy to discuss alternative payment arrangements for you.

    Yours sincerely,

    [Your name]
    [Your position]

    3. Appeal letter

    If you're at stage three of the debt collection process, you've reminded the client, you've appealed to their better nature, and still, they're playing hardball. (Or no ball at all!) Now is the time to get tough and indicate the urgency of the situation by alluding to the consequences.

    Letter sample #4:

    [Include your business name]
    [Include your address]

    [Recipient's name]
    [Recipient's business name]
    [Recipient's address]

    [Date]
    RE: Unpaid invoice # [Include invoice reference number]

    Dear [Recipient's name],

    Despite our previous reminders sent on [include dates], the attached invoice for [amount outstanding] remains unpaid. As such, we would appreciate you making this payment as soon as possible.

    We regret to inform you that unless payment is made by [ultimatum date], this invoice will be passed over to our debt collection agency/lawyer. This could seriously impact your credit rating, so we urge you to either make a payment or contact us about a payment plan before this date.

    You are welcome to contact me directly via [contact details].

    Yours sincerely,

    [Your name]
    [Your position]

    4. Final demand

    As they say, it's three strikes and you're out! The client has not made payment despite gentle and not-so-gentle reminders, which is why it's time for the final letter of demand before you proceed with legal actions. This is also known as the ultimatum collection or final collection letter. Remember to retain an assertive yet professional tone.

    Letter sample #5:

    [Include your business name]
    [Include your address]

    [Recipient's name]
    [Recipient's business name]
    [Recipient's address]

    [Date]
    RE: Unpaid invoice # [Include invoice reference number]

    Despite our previous reminders sent on [include dates sent], we have yet to receive a response or payment from you. Because of this, we regret to inform you that if the outstanding amount is not paid in full by [final ultimatum date], we will have no option but to proceed with court action against you. Please find the full debt amount and additional costs listed below:

    Account value: [original amount owed]
    Late payment costs: [insert amount]
    Interest cost: [insert amount]
    Total: [insert amount]

    We advise that you treat this matter with urgency so as to save yourself the inconvenience of court actions. We look forward to receiving payment by return.

    Yours sincerely,

    [Your name]
    [Your position]

    5. Legal action

    It's now past the point of return and legal proceedings have begun - although you can give them one last chance to settle the bill. What's left now is to alert the client to the fact that the case is now with the courts, despite the many warnings that preceded this communication.

    Letter sample #6:

    Dear [Recipient's name]

    We regret to inform you that, despite several reminders, your unpaid debt amounting to [full amount] has not been settled. As of today [insert date], we have passed your case onto our debt collection agency / legal team. You will be contacted by official court attorneys who will notify you of the hearing date.

    If you wish to settle the outstanding amount, please do not hesitate to contact us.

    Yours sincerely,

    [Your name and position OR name of debt collection agency]

    What do you include in a debt collection letter?

    We've provided you with some really easy-to-follow debt collection letter samples, but there are certain elements you must ensure are included in the letter. This is what you need to check:

    • The amount the debtor owes you, including any interest (attach the original invoice as well);
    • The initial date of payment and the new date of payment;
    • Clear instructions on how to pay the debt (banking details, etc);
    • An indication to make contact if payment has been made;
    • An indication that a payment plan can be arranged if needed; and
    • Warning of impending legal action (for later reminders).

    How to write a debt collection letter

    When compiling your debt collection letter, there are a few things you might want to consider before diving in. Reading up on the subject - as you're clearly doing now - is a great start. But it's also worth:

    Consulting with a professional: If you're worried about the legalities of the process, consider chatting to a debt collection agency or other legal entity for advice.

    Make a checklist: Fortunately, we've done this for you! Check that you've included everything that needs including in the letter.

    Catchy title: You don't want your letter to go unread, so ensure the urgency is displayed in the title.

    Personalise it:  You're doing business and possibly want to continue doing business with the client, so personalise the message to encourage a more favourable outcome.

    Brevity: Don't waffle. This message has one clear outcome so state what needs to be stated and leave it at that.

    When do you hire a debt collection agency?

    Once you've gone through the debt collection steps, it's time to consider bringing in the big guns in the form of a debt collection agency like Chaser. We work for businesses of all sizes and have negotiation experts who can handle the difficult business of debt collection on your behalf. Alternatively, you could start working with us before the stresses of debt collection start to create that stomach ulcer you've been trying to avoid.

    Remember that cash flow problems are one of the biggest reasons for businesses to fail - don't let that be you!

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