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:
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:
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.