March 11, 2011
4 Tips To Writing A More Effective Demand Letter
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.
These are often effective, but they can be improved by learning some tips to help you write a better demand letter. This can help make customers want to pay you sooner, as opposed to later.
1. 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 it’s 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
Your collection letter should state the exact amount the customer owes and when the payment was due. You may also want to mention the services or goods provided as a reminder, although this isn’t always necessary. Where possible, try to keep your letters brief and to the point.
3. Payment Plan
If you notice that some customers are avoiding contact, it is possible to introduce the concept of entering into a payment plan arrangement. You’re effectively asking the customer to pay even a small portion of their unpaid debt to help reduce the amount they owe over time.
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
Mentioning the possibility of late fees or penalties might be a further incentive for some customers to pay. Your demand letters could mention tacking on additional late fees if the account continues to remain delinquent. Faced with the possibilities of still more fees, some customers will find the money needed to pay the debt.
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 caution, that none of your language contains any threatening language of any kind. For instance, you cannot threaten legal action if you’re not actually working with an attorney. You can’t threaten to garnish a debtor’s wages, nor can you imply that you’re working with a government agency to collect your debt.
It also violates federal statutes to make your demand letters look “official”, and like they’ve been written by any federal or state 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.
David P. Montana has been a prominent business veteran, business consultant along with publisher with regard to collection agencies providers for 30 years. He provides extra valuable advice and knowledge on Crafting an effective demand letter.
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