12. COLLECTION LETTERS OR COLLECTION MESSAGES OR DUNNING LETTERS
“They are written by the businessmen to their customers to collect overdue accounts.”
Purpose of a Collection Letter
A letter of collection has three major purposes.
a. Collecting the money:
Collecting the money is the major goal of a collection letter. It is a work of intelligence and patience to collect the money from the customers. The self-respect of a customer should not be hurt. The letter must be a reminder for the customer not the effort to lose the customer.
B. Retaining the Customer:
The main purpose of the collection letter is to collect the overdue account from the customers. So, while writing a collection letter the self respect and sensitiveness of the customer must be kept in mind. It should be written with the purpose of receiving the overdue account not with the purpose of hurting the customer. There is only one way of politeness and courtesy with which a businessman can get the money from the customers as well as retain his customers.
c. Building Customer’s Good Will:
The most valuable asset of a company is its goodwill. That’s why, a collection letter must be a piece of politeness. The defaulter customer must be given a fair chance to explain honestly why he is withholding payment.
Factors in Successful Collections
The success in collecting overdue accounts depends on the following factors.
a. Knowing one’s Customers: The writer of a collection letter must be a very sensitive and sensible person. He must have the knowledge of ups and downs of human nature. He must have the great observation of customers’ paying attitude. He must keep this thing in mind that his customer may be in some crisis. His customer may be unable to pay overdue account because his shop catches fire. Similarly, he is looted by the robbers. Therefore, the writer of a collection letter should keep his tone positive keeping in view the circumstances of the business and his customers.
b. Follow up System:
A letter of collection must be planned in a series. First letter must be a reminder. But after that the writer may increase the pressure steadily. If the payment is not made, then the customer may be threatened for action. But whatever action is mentioned, it should be taken.
c. Good Tone:
All business letters must have a good and gentle tone. They must show respect and regard for the customers. The language used in a letter should be moderate.
d. Variety of Appeal in a Collection Letter:
To collect the overdue from the customer, the tone of the writer must be convincing and persuasive.
The collection appeals play an important role to persuade a debtor to make payment of his debts. There can be positive as well as negative appeals.
1. Positive Appeals:
A positive appeal consists of the following.
a.Appeals to Good-will and Co-operation
b.Appeals to Fair play
c.Appeals to Sympathy
d.Appeals to Pride
a. Appeals to Good-will and Co-operation
This is the mildest appeal. It appeals to the feelings and sentiments of a debtor. The debtor is told that his creditor may be in difficult position due to his non-payment.
b. Appeals to Fair play
A collection letter is also an appeal to the debtor’s sense of fairness. He is told that it will be fair on his part to pay the overdue accounts.
c. Appeals to Sympathy
A collection letter is works as an appeal to the sympathy of the debtor for the writer. The debtor is told that his payment can avoid the creditor from great loss.
d. Appeals to Pride
The collection letter is also an appeal to the pride and dignity of a debtor. He must be told about the reputation he enjoys for the payment of dues. The appeal should be made intelligently. The debtor should not feel that he is being flattered.
2. Negative Appeals
If a positive appeal does not bring the desired results, the creditor has to make a negative appeal. Negative appeals include the following.
a. Appeals to Self-interest
b. Appeals to Fear
a. Appeals to Self-interest:
In these appeals, the debtor should be reminded that he should make his payment. In case of non-payment, his constant facility of getting credit will be terminated. No doubt, the creditor is giving warning to his debtor. But, even then the manner should be polite.
b. Appeals to Fear:
When all the appeals fail, the appeals of fear are made. The debtor is threatened with legal action if he is not ready to pay his debt.
Collection stages are four in number.
First stage of collection letters is ‘Reminder.’ In these letters, a debtor is simply reminded that he is to pay his overdue accounts. The numbers of these reminders may range from 5 to 6.
2. Strong Reminder:
In such reminders, the stronger words are used than those of the first. The debtor is reminded that perhaps he has ignored to pay the debt due to some oversight or lapse of memory. The language used should be simple but the pressure should be applied to make the payment.
3. Discussion Stage:
After the failure of first two reminders, the third stage is ‘Discussion Stage.’ The debtor is egged on to explain the reasons of non-payment. The creditor must tell him that he does not doubt his intention but whatever the reason is, he must be told immediately. The tone should be courteous. For example, he can inquire in the following way.
“Won’t you tell us frankly what the trouble is?”
After the failure of discussion stage, the matter becomes grave. In this letter, the debtor should be given an ultimatum. The language should be sharp and imperative. The debtor should be forced to make the payment as soon as possible, otherwise the legal action would be taken.
Qualities of a good Collection Letter
A good collection letter has the following qualities.
1. Always Courteous:
The art of collecting overdue accounts is Herculean task. So, without hurting the debtor try to collect the overdue account. The first and foremost method to collect it is courteous tone of the writer. So, be courteous when you are going to write a collection letter.
2. Friendly Tone:
Up to the final legal break, the tone of the writer should be friendly. Even if you are trying to pressurize your debtor, courtesy should be given preference.
3. Firm and Dignified:
Be courteous when you are going to write a collection letter. But it does not mean that you are to become apologetic. Your letter should be firm and dignified.
4. Respect and Dignity of the Debtor:
A creditor must write a collection letter not only in a firm and dignified way but he should also keep in mind the respect of his debtor. A debtor should not be insulted or disgraced.
A collection letter must be confidential. It must be sent on postal cards.