6. collection letters

Collection Letters

By Kamlesh Joshi

Collection letters

• Introduction:• A collection letter is written to get the money from the customers.• It has to perform two functions, one is to get the

money and other is to retain the customer’s goodwill.

• A uniform collection policy can’t be applied to all customers.

Collection letters

• Collection letters are written in a series to persuade the customer to settle his outstanding account instead of directly resorting to legal action.

• Collection letters are divided into three stages:A.Reminder stage.(1st & 2nd stage)B.Inquiry-appealing stage.(3rd,4th,5th reminder)C.Warning- threat stage. (6th & 7th reminder)

Collection letters

A. Reminder stage:• At this stage it is presumed that the customer has failed to pay off the bill by mistake. Therefore he needs to be reminded that the payment is yet to be made. This just a reminder so don’t insist on payment and keep the tone mild.

Collection letters

• Hints for drafting reminder stage:• Refer to the statements of account already

sent and the amount due.• Say that the customer has perhaps

overlooked the statement sent.• Request for prompt payment.• Enclose the statement of account for

reference.

Collection letters

B. Inquiry-appealing stage:• This second stage is represented by three

reminders, namely third, fourth and fifth reminder.

• Here stress is given on the importance of credit as the foundation of business and reference to the contractual obligations and the need to meet them in time.

Collection letters

• Hints for drafting inquiry and appealing stage:• Refer to the amount due and the time since it

has been due.• Refer to the past reminder.• State the problem faced by you due to non-

payment and inquire if there is any problem.• Offer to accept the payment in easy installments.

Collection letters

• Suggest to return the goods that remain unsold.

• Demand prompt payment.

C. Warning / threat stage:• As far as possible, this is avoided but when

there is not any other way, this the last option for any business person to collect his money.

• Warning or threat stage is in the form of 6th and 7th reminder .

Collection letters

Collection letters• Hints for drafting the warning / threat stage:• Refer to the steps taken by you. ( past reminder)• Say that all your humble efforts have failed.• Give a definite time limit within which you want

the payment.• Explain the course of action that you propose to

take if payment is not received in given time limit.

Collection letters• Opening statements:A. This is just to remind you of your outstanding

account of Rs._____.B. We are at a loss to understand why we have

not heard from you regarding your account which is due from _____.

C. You have this last opportunity to set right your account by paying Rs. ____ which is due from_____.

Collection letters• Closing statements:A. We look forward to receiving your

remittance.B. We expect you to promptly square your

account so that you continue to keep your credit.

C. We are sure you will avoid the unpleasant consequences of legal action.

Reminder stage GUJARAT ELECTRICALS Ahmedabad15th July, 2012ToThe ManagerBharat ElectricalsRajkot.

Dear Mr. Jani,

SUB.: A letter of reminder for the payment due. This is just a friendly reminder that your

account with us now is two months past due perhaps you have overlooked it or owing to your extremely busy schedule it has escaped your notice.

We genuinely appreciate your business and look forward to serving you better in future.

Yours sincerely, --------------------

Reminder stage

Inquiry & appealing stage GUJARAT ELECTRICALS Ahmedabad15th July, 2012ToThe ManagerBharat ElectricalsRajkot.

Dear Mr. Jani,

Inquiry & appealing stageSUB. : Letter of reminder for the outstanding

Account.looking into our records we find that your credit

worthiness is really high. We are simply not prepared to count you amongst the delinquent group. But unfortunately we find that your May 15, 2012 balance of Rs.__ is much over due.

What really worries us is that even the first reminder of ours has not been replied.

Inquiry & appealing stageI hope everything is fine with you.Let us know by return post if there has been any

lapse on our part. Are you not satisfied with our goods or services? In settling the account we can work it out.

You will always find us willing to accommodate you. With this promise we eagerly await your reply.

Yours sincerely, -------------------

Warning / threat stage GUJARAT ELECTRICALS Ahmedabad15th July, 2012ToThe ManagerBharat ElectricalsRajkot.

Dear Mr. Jani,

Warning / threat stage

SUB. : letter demanding the Payment due.We deeply regret having to say that your

account has been handed over to our lawyers for legal action. You have left us with no option.

All efforts to receive a cheque from you against your account of Rs.____ overdue, have failed. Our chief accountant has already asked the lawyers to move the matter to the court. But

Warning / threat stage

I have specially requested them to wait till___.

You have in this way one more week to retain your credit with us. Please send the cheque by return post and save yourself the cost and consequences of legal proceedings.

Yours sincerely, --------------------

Debtor’s reply Request for extension of time

limit• Introduction:• Sometimes debtors have valid reason for non-

payment . The debtor may not be in a position to settle the account due to certain problems.

• In such cases debtor may write a letter to creditor and aware him of his real situation.

• the debtor may request him to make payment in installments or to give some extension of time.


limit• Hints for Debtor’s reply:• Acknowledge creditor’s reminders for payment• Offer apologies for non-payment.• Refer to your past regularity in the payments.• Explain the situation which prevents from

making the payment.• Request creditor to grant extension of time.• Assure the creditor for payment on agreed date


limitDear Sirs, Re : Your bill no. A 3703 of MAY 10, 2012We have received your letter of July 10, 2012,

requesting us to pay off the outstanding bill. We are indeed very sorry as we have delayed the payment for such a long period.

Actually we are facing severe financial crisis. Our shop got damaged by earthquake. We had to spend two lakhs in renovation.


limitAlthough our shop has been insured against

natural calamities, it will take some times in getting compensation from insurance company. We therefore request you to give us an extension of two months for the payment. We hope you will oblige us by granting the extension.

Yours faithfully, ______________

Thank you

6. collection letters

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