Bad Debt Collection Letter

Business transactions are incomplete without credit. Not all payments are made immediately in cash. Credit period is allotted to customers; suppliers give a credit period, etc. Thus, an outstanding amount needs to be collected. Sometimes these amounts are cleared on time, and sometimes the borrower fails to pay the amount. In some cases, the borrower is in some disastrous situation that stops him from paying the amount, and he/she informs about it to the concerned person. In other cases, the borrower does not repay the amount, nor does he speak about it, even after getting many reminders. In such cases, the person who has to collect the amount writes bad debt collection letters. If the letter is written after sending many reminders, then the tone of the letter would be a little harsh, and also include warnings. Otherwise, it would request the borrower politely to repay the debt.

Writing a bad debt collection letter:

No business would survive without customers. Thus, when it comes to collecting the loan amount and writing a collection letter, one should be very careful. Losing a customer is not good. Moreover, if the customer gives you huge business, but always delays payments, losing such a customer would not be a wise decision again. Thus, the content and the tone of the debt collection letter should be drafted smartly.

Collection letters written in different situations serve different purpose. Initially the creditor might only make reminder calls to the debtor for clearing payments. Later, he/she might send a 'Reminder Collection Letters'. These letters would only request the debtor to clear the payments. When these letters are not responded to, the creditor will send a 'Final Demand Letter', which strictly warns the debtor of clearing the payments, or he/she would face some legal actions. This is the final warning, and if the debtor ignores this, the lender has the right to take strict legal action against the debtor.

To help you understand the concept better, given below is a sample bad debt collection letter. The letter is always written on a letterhead. The left aligned text given in the sample below denotes the letterhead for Jack Industrial Materials.

LOGO

Jack Industrial Materials
Business City
Street - 101 -23
Huttington Crossroads
San Francisco - 21041

23rd November 2011

Name of the client: Parx Ancillaries
Invoice number - H - 502, dated 20th May 2011
Letter number - 3
Subject line - Final reminder letter to clear the bad debts since past six months.

To,
Mr. Mark,
Head - Accounts department
Parx Ancillaries

Dear Mr. Mark, While reviewing the receivables of the organization, it has come to my notice that my accounts team has been calling you and sending you reminder letters to clear the outstanding amount of $10,000. This amount was to be cleared in the month of June, 2011, as per the credit period conditions agreed between us. However, I see for some reasons you failed to do the same.

We have been working together since 6 years, and you know that we never extend our credit period for anyone. In your case, we have been sending reminders, and your department has failed to respond to the same.

I thus wish to inform you that this would be the final reminder letter sent from our side. We expect you to clear the payment by 30th November 2011.

If you have any doubts, you can contact us. As we have already extended the credit period, and have been sending reminders to you, further delay would thus lead to legal action against Parx Ancillaries.

Enclosed please find a copy of invoice and a record of reminder calls and letters sent to you.

Thanking you.

Yours respectfully

Michael Ponting,
Accounts head,
JJ Industrial Material

Enclosures:

1. Copy of invoice
2. Record of reminders

The sample bad debt collection letter given above clearly puts forth that the customer has been getting reminders, but he has turned a deaf ear to the same. Also, the customer is valuable to the organization, so they have extended the credit period for them and mentioned the same in the letter. Failure to respond to the reminders and clearing the outstanding amount has forced the organization to write a letter warning the customer of legal action against them. The letter has a tough tone, yet it makes the customer feel that he got a leeway because of the six years of association with the organization. Using this letter write your letter smartly. Also, you can review tips for writing Financial Difficulties Collection Letter and Sample of Collection Letter.