February 19, 2011
Develop A More Effective Demand Letter With These Four Techniques
If you are handling your own debt collections in house, then you already recognize the need to periodically send demand letters to delinquent customers.
Most business owners opt for the gentle option of sending a friendly reminder notice to act as their collection letter, hoping that payment has simply slipped the customer’s mind temporarily.
While these can have varying degrees of success, they can still be improved upon by learning a few tips to help you write a more effective demand letter. This will encourage your customers to pay you sooner, rather than later.
1. Wording That Is Professional
Demand letters should never be written in a threatening, harassing or abusive tone. Some delinquent customers may get defensive, perceiving your letter as threatening, even if it wasn’t meant as such. This can have negative consequences, not the least of which is that the customer won’t be in the mood to pay you. It can even result in legal retaliation.
Your demand or collection letters should stay on point, and clearly communicate that the customer owes an unpaid debt, and encourage them to pay. This is often incentive enough to get your customer to pay.
2. Be Exact
Demand letters should clearly state the exact amount that is late and past due, as well as when payment was due. It can be good to also remind them of the products or services originally purchased. These letters should be succinct and brief.
3. Payment Settlements/Arrangements
If some customers are avoiding all contact, you might want to offer a payment arrangement. They might be ashamed of admitting financial difficulties, and a payment plan with smaller payments over time might be more financially manageable for your customer.
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 are just suggestions to help you encourage your customers to pay their unpaid debts and keep cash flowing into your business at the same time.
If you’re dealing with your debt collection procedures in-house and writing your demand letters yourself, you must not imply that a debt collection agency is involved in the collecting.
You also have to exercise care that none of your wording implies any kind of threat. You also cannot use any kind of deception in your letters. For example, you cannot insinuate or threaten legal action if you are not working with an attorney. You also can’t imply that you’re working with any government agency to recover your debt. Neither can you threaten to garnish a customer’s wages.
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 distinguished enterprise professional, business adviser as well as writer about debt collection agency offerings for thirty years. He gives extra invaluable tips and knowledge on Creating an effective demand letter.
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