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Debt Collection by Letter
Encouraging payment of an overdue account by letter can be very cost effective and efficient.

Debt Collection by Letter can be very cost effective

Debt Collection by Letter is an accepted method for all types of debt.

If done properly debt collection by letter can be very cost effective and efficient use of resources.

The ‘Collection Letter’ should fulfil the requirements of your Debt Collection Policy. With an effective debt collection policy in place there should be no question as to which letter to send. For example:

  • First reminder letter: A gentle / polite reminder
  • Second reminder letter: A simple reminder which may question the possibility of an oversight
  • Final Demand letter: A Formal Demand Notice and / or
  • Letter before legal Action: An unmistakable demand for immediate payment

Get it right first time

Knowing who your customers are before you do business is only part of the process of opening a new account. Knowing who your customers are should include the structure of the company so that you know who to address payment requests – you don’t want your Collection letters going to the wrong department/person, or sitting with the person/s who ordered the goods or service as these people may not have the authority to approve payment.

Don’t skimp on formality..

…and don’t mix your messages!

Debt Collection by Letter IS a formal process. Therefore do not water down the message by including sales or other promotional material with or in your Collection Letter.

Avoid legalese – write in plain english. Clearly out line why you are writing and what you expect from your customer, and what you will do – and then do what you say. If you tell your customer that you will close / suspend their account, seek legal action, leave an adverse rating on credit rating agency or whatever it is, you must do it!

If your customer does not respond, then they either can’t pay, or are testing your collection skills. Either way it is important to follow through on your previous letters.


How you select which letter to send to which customer will depend on your accounting system and Debt Collection Policy. However we recommend that you Keep It Simple!

Traditional credit control / debt collection for small to medium, and I would suspect a lot of large companies as well, will involve someone within the company Eye balling the 60-90 day column on the debtors ledger and making a decision on who to chase based on the Historic relationship – Russian Roulette on time delay!

One advantage of this manual ‘Eye Balling’ of one debtor ledger is that of control – someone, presumably with some authority, gets to decide on who gets send a letter. The disadvantage of this method is that it is often random, when time allows, and if this person is themselves busy then this important task may only get a cursory glance.

Additionally this Eye Balling method can often result in the wrong letter being sent because the time lapse between invoicing / statements and Collection Letters. For example the Invoices and / or Statement may have already highlighted an arrears situation – in fact they should have – so any Collection letter would take this into consideration. However the risk is that they will get a First reminder letter: A gentle / polite reminder, which shows the customer that you don’t take debt collection seriously.

By having a Debt Collection Policy and sticking to it should ensure that any debt collection letter sent matches the circumstances. And knowing your customer would include ‘THEIR’ payment habits. For example most companies do not pay on the 7th day or 20th of the month etc, but rather a few days later, with large companies its not uncommon for them to pay a day or two into the new month (and only because you let then get away with it). With this Customer Knowledge you wouldn’t waste your time and resources sending out collection letters on the 8th day or 25th of the month – providing their payment habits are known to you.


Most accounting software packages have the facility to select / setup an overdue alerting mechanism and letter writing process, so we suggest that if you are not using this then you invest a little time evaluating its worth to you.

This brings us back to you Debt Collection Policy which should state the criteria for overdue actions. So whether you use a manual (Eye Balling) method, an automated process or a combination of both your letters / arrears alerts need to be send out at pre-determined times.


Customers may get used to your letter writing process and therefore it is essential that you do as you say. And if you choose to continue trading with a customer who is always late, you need to be aware that the effectiveness of always sending the same First Letter each time they fall behind may loose effectiveness.

Some customers may be slightly offended if you send out the same First Letter every time an account falls overdue. On the other hand, you are sending a clear message that you take credit control / debt collection seriously AND that you are on to it. This should increase your priority for payment, as most people don’t like getting Reminder Notices all the time!

Debt Collection by Letter is a very cost effective and efficient way to collect overdue debt – when you are consistent and follow up on your “Promises”…

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