Letters of Collection: Tips for Small Businesses (With Template)

Almost every business has to handle situations where their client neglects to pay for their services. If this happens, craft a collection letter that states the services you provided, how much is due and the date to submit the payment by. A well-written collection letter helps you receive your deserved payment, while still remaining on good terms with your clients. Learn more about what a collection letter is, why it’s important, what to include in it and the best practices for writing one. 


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What is a collection letter?

A collection letter is a written notification that businesses send customers or clients to notify them of their past due payments. After a client has neglected to pay for a service, the business will send them a letter reminding them of their delinquent payment status and will ask them to send the money owed for the project by a specific date. 


Importance of creating a collection letter template for your business

It’s important for you to have a collection letter template prepared and ready to send to clients because it helps you remain in good financial standing while also maintaining your professional relationship with them. Some clients simply forget to submit their payments to companies. Quickly filling out your template and sending them a collection letter gently reminds them to make a payment without seeming too aggressive. 

Sending professional collection letters helps you manage a more balanced income and cash flow, so you can pay employees and vendors on time and your organization can operate efficiently. Collection letters that have professional and positive wording help clients feel more comfortable and encouraged to send their payments to you. This helps you keep an ongoing relationship, while still letting customers know how serious you are about receiving payments on time. 


What to include in a collection letter

There are various elements to include in your collection letter to make it sound both courteous and firm. This letter must establish your seriousness about receiving payments while also maintaining a good connection with clients. Elements to include in your collection letter are: 

  • Brief statements: Use simple language in your letter that briefly describes the service you provided and clearly details that the client is past-due on their payments. Keep it brief, relevant and easy for clients to quickly read through. Explain your reason for writing in your first sentence and expand upon that in the second sentence.
  • Copy of the invoice or a statement of multiple invoices: Provide proof of these overdue payments by including a copy of their invoice that states the work completed and the agreed upon payment terms. Either attach these in separate documents or list them in the letter. 
  • Date they must make a payment: Clearly state an exact deadline for clients to make their payment. This gives them a set amount of time to get their finances in order to pay you the necessary amount.  
  • Acceptable payment methods: Remind them of the payment methods you accept, like credit or debit cards and checks.  
  • Your business’ contact information: Let them know how to get in touch with you for more information or for any questions they have about their overdue payments. Consider listing your phone number, mailing address and email address.  
  • Envelope with prepaid postage: Make it easier and more convenient for them to send you payments by providing an envelope with a stamp and postage details you’ve already paid for. 
  • Professional sign off and signature: End the letter with a professional sign off that includes your name and title at the end. Be sure to thank them in your last sentence to remain courteous.


Best practices for writing a collection letter

Follow these best practices to help you write a great collections letter: 


Keep your letter professional 

Though it’s often nerve-wracking for your business not to receive an on-time payment, it’s important to stay calm and positive while writing. Reading a negative and aggressive collection letter can seem unprofessional to clients, which potentially results in payment refusals or a loss of business with that client. Keep it professional and assume that the client will pay the collection fee after they receive your letter.  


Remain compassionate and understanding 

Your clients could be undergoing financial struggles, so it’s important to be empathetic and understanding in your letter. This makes them feel more comfortable communicating their reasons for not paying and working with you to set up a payment plan. Remaining patient and compassionate with your clients helps you build a stronger relationship with them and ensures you’ll keep them as a client. 


Work with a collection agency if needed 

If you’ve sent the proper amount of collection letters to your clients, which is typically around four letters, and haven’t received a response, consider hiring a collection agency to ensure you receive this payment. A debt collection agency is an organization that reaches out to your delinquent clients through phone calls and emails to inform them that they’re late on payments and to set up a payment plan with them. Collection agencies handle recovering your funds so you no longer have to. 

Be sure to research collection agencies to find a credible one for your business. Note that the collection agency you hire will need to receive compensation for their work, so part of the client’s payment will go to both you and the collection agency. How much they collect typically varies depending on the agency and the amount your client owes and may be anywhere between 7.5% to 50% for each of your clients’ accounts.


Collection letter sample template

Use this sample template to help you craft your own collection letter: 

[Current date] 

Dear [Client name],

We’re sending you this letter as a friendly reminder that your account in the amount of [amount due to you] is past due. Your invoice was due on [month, day and year their payment was originally due as stated in their invoice]. This payment is now [number of days since the due date] past due. We’ve attached the invoice for your reference. 

Please send your payment in to us no later than [exact month, day and year you’d like to receive their payment]. We’ve attached an envelope with paid postage for your convenience. You can also pay us by debit or credit card over the phone by giving us a call at [your business’ phone number].

If you’re not able to make a payment by the date requested, please give us a call and we’ll make payment arrangements as necessary. 

Thank you for your business and cooperation. 


[Your name and title] 

[Your business’ name] 


Be sure to remain patient with clients when they reach out to you about their payments. Work with clients to set up a reasonable business plan that helps you receive your compensation while still maintaining a strong relationship with them.

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