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What Is a Collection Letter?

A collection letter is a document that is sent by one entity to another informing the latter of debts that they need to pay. In other words, this letter serves to remind a person of money that they borrowed from another and that the lender is asking them to pay them back.

How to Create a Collection Letter

Need to create a collection letter that's non-threatening and is compelling enough for the borrower? Simply go through our list of instructions below, they'll help you with everything you need to know about creating collection letters.

1. Choose a type of collection letter

There are four types of collection letters that you can write, and they are named according to numerical order such as first, second, third, and fourth. As you might have already guessed, you will have to start with the first collection letter which is considered light as opposed to the last two that have more aggressive language. If a client responds to the first collection letter, either by phone or by another letter, you will no longer need to create any of the subsequent types.

2. Know what information to include in a collection letter

When creating a collection letter, you need to show your client that you're serious in collecting payment while trying to maintain a healthy and professional relationship. To do this, you need to know the basics of writing a collection letter, which includes using the business' letterhead and to type the letter. Additionally, be reminded that your letter should also feature your contact information such as phone number and both mailing and email addresses.

3. Collect all necessary facts about the client

To determine how capable or willing your client is at paying you back, then you might need to gather all the facts you need about them. In addition to gathering information about your client, you should also obtain information about the client's account while encouraging them to pay the money borrowed. Always be specific about the amount of money that the client owes you and if there are any other things aside from just money. This way, you'll avoid any misunderstandings in the future.

4. Inform the client of the possible penalties

While it's already obvious that penalties are involved if the client is unable to pay, it's still worth making an effort to remind them of this. However, this is only usually applicable if you have reached the fourth collection letter, talking about penalties is unnecessary if the client has already agreed to pay you back after the first or second letter. When informing the client about the penalties, keep a polite and professional tone and always be prepared to make a follow-up.

5. Take note of tips for avoiding payment collection issues

It may be very likely to encounter clients that you'll have a hard time collecting payment from, and there are a few things that can help in minimizing this from happening. First, be sure to review the accounts receivable and do it often, it's one of the most reliable financial reports that you can get your hands on. Also, try to offer discounts or incentives if they are able to pay early, many people would grab this chance simply to save a few bucks.

6. Proofread before printing the collection letter

And just like any other professional and legal document, always make it a habit to proofread the content before printing it. This is highly applicable when sending a collection letter since a single error on the content may void the entire letter forcing you to make another one. Always make sure that there aren't any misspelled words or grammatical errors in the letter, and see to it that the content is straightforward and not confusing.

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