How to Write a Debt Collection Letter

This guide includes information about how to write a debt collection letter and pursue outstanding invoices from nonpaying clients.

• A debtor is reminded that they owe you money in a debt collection letter.
• A debt collection letter can be used to establish a repayment schedule or to notify the debtor of imminent legal action.
• The entire amount owing, the original due date, and any relevant notices of imminent legal action should all be included in a debt collection letter.
• This article is for entrepreneurs and independent contractors who want to officially pursue unpaid debts from clients.

One example is if a customer pays your most recent invoice a few days or a week after it’s due. It’s different if you haven’t received payment in months, especially if the invoice is substantial. If your usual lines of contact aren’t working to get your customer to pay their debt, you might need to take more official action.

The initial activity in your plan of action should be to send out debt collection letters. You can submit the client’s debt to collections once enough letters have been issued, however you might want to explore all other possibilities first. Continue reading to find out more about debt collection letters and the procedure.

What is a debt collection letter?

A debt collection letter is a formal debt reminder that you send to a nonpaying client (or that you commission a collection agency to send on your behalf). An individual consumer or a B2B client (another firm) might get a letter for debt collection.

Your first few letters of debt collection to a debtor can be rather kind and understanding. However, when you send out more debt collection letters, you might need to step up you’re writing and add cautionary statements about potential legal action.

What is the purpose of a debt collection letter?

One, some, or all of the following objectives may be accomplished by a debt collection letter:

Informing debtors that they owe you money. Your letter should merely remind the client of the debt’s existence and the first due date if this is your intended outcome. The debtor may not mean to obstruct you, therefore you should at most subtly suggest that legal action may be taken in the future. They can just be unaware of your debt or experiencing financial difficulties but still want to pay.

Establishing a payment process. If it transpires that your debtor is having financial difficulties, you might include a payment schedule in your debt collection letter. The debtor won’t have to work hard to pay you $10,000 all at once this manner. Instead, you can set up a payback schedule with monthly payments of $1,000. To that end, be sure that any repayment schedule you accept is equitable for both you and the debtor.

Starting legal proceedings. If your customer’s debt remains unpaid for a sufficiently extended period of time, you could need to file a lawsuit to recover it. If so, you must send the debtor a debt collection letter describing the legal steps they might anticipate. You can legally start the collections procedure, whether you handle it yourself or engage a collection agency, if the debtor doesn’t swiftly reply with full payment of their obligation.

What should be included in a debt collection letter?

The following details have to include in a debt collection letter:

• The sum owed to you by the debtor
• the payment’s original deadline
• A new payment deadline, whether it’s sooner or later
• directions for paying the loan
• If the debt has been paid and you are mistaken, you should state in your initial debt collection letter that the debtor should get in touch with you.
• Early in the collection process, a polite but strong reminder that money is due immediately
• A statement stating that you want to keep the customer but need money in order to do so should be sent out in the early phases of collection
• A strong (but not entirely hostile) notice of imminent legal action, such as taking the debtor to collections, should be given in the last phases of collection.
• Late in the collection process, include a notice that the debtor has the option to challenge the amount owed by sending a debt validation letter within a certain amount of time after receiving your debt collection letter.

All of the aforementioned are included in the sample debt collection letter that is provided below for your usage.

When to hire a debt collection agency

You might choose to employ a debt collection firm to retrieve the debt after issuing a final debt collection letter that threatens legal action. These agencies can be used by freelancers with unpaid clients as well as small enterprises. To free you up to concentrate on your regular business, their debt collection specialists will manage the collecting procedure on your behalf.

However, given their high cost, you should only use collection services as a last choice. Agencies are frequently unsuitable for collecting minor debts since, in most cases, when you send a debt to collections, your agency will keep a sizeable portion of the bill as its payment. Sending a customer’s debt to collections is another guaranteed method to end your relationship with that client, so be sure you’re ready to cross that bridge before you act.

Consult our collection agency evaluations before using a debt collection firm. For you to receive your debts with the least amount of fuss, our reviews highlight the top B2B collection agencies, B2C collection companies, and inexpensive services.