If you’re considering writing a collection letter, you’ve probably been grappling with overdue accounts receivable for a while. If you need help but don’t know where to start, read this guide! In it, we’ll cover what a debt collection demand letter is, what’s included in it, and our tips for writing the perfect one.
If so, we can help! Read this guide to mid-sized and small business recovery and we’ll break down what’s changed, how it impacts you, and what you can do about it with some post-pandemic business ideas.
What Is a Collection Letter, and What Is It Used for?
A collection letter (also known as a demand letter) is a document that outlines a financial dispute between two opposing parties. These letters attempt to collect outstanding debts by beginning a negotiation process with the debtor. While a demand letter is typically written by a professional or attorney, anyone can write one.
Nobody relishes sending out demand letters, but it’s a necessary part of dealing with clients that refuse to pay. AR is the lifeblood of most businesses—if a large number of clients refuse to settle their debts, it’s time to write a collection letter.
While debt collection letters have a negative reputation, they’re designed to avoid more serious action. Legal considerations are the reason why it’s critical that your collection letters are carefully crafted. A poorly written demand letter will lead to unsuccessful negotiations and unrecovered debt. It’s important to keep in mind that not all outstanding debts are the product of sheer negligence. We live in extremely volatile times. It’s entirely possible that your client is simply unable to pay.
An effective demand letter must contain a delicate blend of various appeals. The best approach involves combining all forms of argument but most focusing on logical appeals. Leverage your legal position.
What’s Contained in a Demand Letter?
While every demand letter should be tailored for its specific client, there are some elements that should always be included. These include:
- An overview of the relationship between the parties involved
- An analysis of the type of debt
- Legal justifications that explain the demand letter
- Coverage of all previous attempts to collect the debt
- A time-sensitive payment demand
- The course of action if payment is not received
Most importantly, a demand letter must include a final deadline and the time that debtor has to pay their dues. Demand letters are invaluable tools if your debt does have to go to court, so you want to make sure that it’s executed well. A demand letter must be clear, concise, and easily understandable by the debtor it is sent to.
A poorly drafted demand letter can actually be used against you in court. A client can take legal action against you if your demand letter is threatening or includes malicious content like veiled threats. Write a collection letter to be stern, not threatening.
Our Tips for Writing the Perfect Demand Letter
A well-crafted demand letter is key to getting back your AR and bolstering your legal position if a debt must be taken to court. Follow these tips to write the perfect demand letter:
Include Relevant Documents
A formal demand letter should be a last resort before legal action is taken. If you’re drafting your demand letter, you’ve probably sent out other requests to receive payment, like invoice reminders, and other collection letters. Gather all of these records along with the initial purchase order and attach them to your demand letter. Make sure to make the information as clear as possible by including dates and a full history of payment reminders.
Manage Tone
It’s imperative that you use the right tone throughout the letter. Too many business owners think that the key to the collection process is aggression—this couldn’t be further from the truth. In reality, collections are all about excellent, two-way communication.
It’s understandable that you’re upset, especially if you’ve contacted the debtor numerous times about their payment. However, this anger cannot translate into your debt collection demand letter. Aggression makes the client less likely to pay and could leave you vulnerable in court. Stay objective throughout the letter, and keep your arguments logical and relevant.
Lock Down Your Structure
Make sure your letter is organized and easy to follow. Demand letters aren’t supposed to be complicated or overly long, they should be straightforward and state facts. Keep your letter organized with excellent structure by using headers, lists, bullet points, a table of contents, and other organizational tools.
Clearly Define the Demand Amount and Due Date
The most important piece in writing a collection letter is clearly stating the demand amount and due date to the customer. This information should be extremely easy to locate and refer back to, so consider stating it in numerous places and giving it its own section entirely. Furthermore, break down the payment and make it clear how late fees, interest, and other modifiers have affected it. This piece of the letter should be extremely clear and easy to follow.
Be Punctual
Collections are extremely time sensitive. The longer you wait to get in touch with your clients, the less likely it is that you’ll successfully collect your debt. Furthermore, sending out your letter ASAP reflects your urgency. This will lend credence to your case in court by showing that your business is highly concerned with recovering the debt.
Use Multiple Channels
Finally, make sure that you send your demand letter through multiple channels. Make sure your client has every opportunity to receive your letter by sending it through every channel. Consider sending your letter physically, through email, fax, EDI, and notifying your client through calls and text. You have to be confident beyond a reasonable doubt that your client has received the letter—otherwise, it may not hold up in court.
Need Help Writing a Collection Letter?
Not handling your collection letter correctly can do more harm than good. If you want to ensure that your collection letter is handled right, you should consider partnering with a professional.
Our Accounts Receivable Demand Letter Example
Here’s our collection letter example:
George’s Dinosaur Store
429 Stegosaurus Way
St. Louis, MO, 63123
(314) 899-7820
GeorgeDino@gmail.com
January 5, 2022
AMOUNT DUE: $50,000
THIS IS OUR FINAL ATTEMPT TO COLLECT YOUR DEBT.
Dear Archibald Gunthrey,
You currently have an outstanding balance with George’s Dinosaur Store in the amount of $50,000.
This outstanding balance is in regards to the dinosaur bones purchased on 6/2/2022 and has reached over 120 days in aging. We’ve attempted to reach you multiple times across numerous channels of communication to no response. Our initial agreement (attached below) has not been complied with. If the full payment amount of $50,000 is not received in full within 10 days of receipt of this letter, we will pursue the legal recourse we deem necessary to recover the debt.
To resolve this matter, select one of the payment options below:
- Payment Option A (Include Specific Date)
- Payment Option B (Include Specific Date)
- Payment Option C (Include Specific Date)
If you fail to respond to this letter, all legal options shall be explored, including the legal proceedings we deem necessary to recover your debt. Alternatively, this debt may be transferred to a collection agency in accordance with State and Federal Laws.
This demand letter for payment serves as official notice and may be used in court as evidence of your failure to pay. If legal action is necessary, it may involve you hiring an attorney and will impact your credit history. Attached is evidence of all of our previous attempts to contact you.
This is our final demand letter, and we hope we can resolve this matter together as soon as possible.
Regards,
George’s Dinosaur Store
When Do You Send a Debt Collection Demand Letter?
Determining the right time to send a collection letter is challenging. If sent too late, you minimize the chance you’ll successfully collect the debt. When sent too early, it could be misconstrued as aggressive, impact your reputation, and ruin your chances of success.
A demand letter should never be sent as first notice. Only send a demand letter when you’ve run out of options to resolve your outstanding debt. We would generally recommend waiting until 90 days after your invoice’s due date to send a final demand letter.
What Happens if They Don’t Respond?
Wondering what to do if you send a final demand letter and the client still doesn’t get back to you? While legal recourse is always open to you, your best bet may be partnering with a collection agency. A collections agency will have the skill set to make sure that your outstanding debts are recovered.
For the ultimate collection team, look to Rapid Collections. 95% of cases that come to us are successfully resolved without ever having to go to court. We’re not just successful though, we’ll keep your business’s reputation in mind the whole time. Poor AR doesn’t have to be the norm. Contact us and it won’t be.
