About Collection Letters

A collection letter, otherwise known as a dunning letter is a tool used by businesses to collect on delinquent accounts. While some businesses use these letters as a last-resort method, collection letters can be a budget-friendly and customer-friendly way to collect on past due accounts.

Function

Also called dunning letters, collection letters function as a written notification of past-due balances. Meant to nudge past-due customers to make payments, they are usually sent strategically one after another. With each letter the tone grows more direct, until some type of payment is received. An effective collection letter achieves its purpose without destroying the goodwill between the original debtor and the customer.

Benefits

During business hours many customers are either at work or will not answer calls from unrecognized phone numbers. Collection letters are unavoidable, as everyone checks the mail. In truth, this characteristic of a collection letter also benefits the customer. Because the letters lower the cost of collections, the collections agency can easily offer customers a settlement for an amount that is less than the original debt. In addition, a letter is usually preferable over talking to someone over the phone because a letter feels less threatening. Collection letters are thus more cost efficient and time efficient than phone calls when collecting past-due accounts. This makes collection letters a more appealing alternative to collection calls.

Misconceptions

Many people think that sending out collection letters should be a last resort, something done only when phone calls fail. On the contrary, a letter gives the customer a tangible reminder of the debt. It serves as proof-of-collection efforts.

Types

There are two types of collection letters. A notification letter informs the customer that the debt owed is past due. It is usually sent immediately after a debt becomes past due. The second type of collection letter is called an action letter. Sent out once an account becomes seriously overdue, this letter informs the customer of actions the company may take if the debt isn't paid immediately. Many times, multiple types of each letter will be sent, with each escalating the previous letter's content.

Considerations

According to the Fair Debt Collections & Practices Act, you can only send collection letters that are accurate to customers. Thus, stating that the account will be turned over to a credit bureau in 30 days is only legit if it is followed through. When the action isn't followed through, it becomes false, and a false action claim is illegal.