Business Letter Writing - Collections

( Originally Published 1918 )

Importance of Right Letters.—A heavy responsibility rests upon the collection department of any business. One obligation is to see to it that the accounts are kept paid up as close as possible in order to provide funds for the carrying on of the business, and the other is to do this in a way that will not give offense to the customers and so lose their trade.

The letters from the sales department that are not effective simply cost the house a possible sale, and the next week or two the next one may land the order. But the wrong attitude, the one that gives offense, in the collection letters, while they may bring in the deferred payment, will probably not ever have to be written again to the same customer, because he has stopped buying. Hence the problem of the collection department is to "get the money and keep the customer."

Classes of Accounts.—Collections may be said to be of two kinds, commercial accounts, that is, between business houses, and installment ac-counts, where the customers are individual users or consumers. Each class requires its own particular treatment, for it presents its own problems that are very dissimilar, yet the same principles are involved and the same necessity to be insistent that the account be paid but without giving offense.

Commercial Accounts. — The commercial accounts include the honest debtor who through a variety of reasons, principally inefficient management, has not been able to keep his own collections close up; the good account who has earned the reputation of slow pay and who insists upon hanging onto his money to the very last day possible, and the dishonest debtor who resorts to every trick and technicality to evade payment of his obligations.

Thanks to the mercantile agencies, this last class of debtors is the least dangerous, as they are soon discovered by the agencies and their true character is speedily revealed so that dealings may be limited to cash-with-order or on the C. O. D. basis. But in dealings with the other two classes eternal watchfulness is required, mingled with a desire to help the debtor over the rough places and so win his confidence, coupled with a firmness that is kindly withal and yet that can be severe and even drastic when such measures only will bring results.

Cooperation with Credit Department.—So intimately are these two departments connected that in many houses they are merged into one. In the matter of collections there should be no fact known to the credit department that should not be equally well known to the collection depart-ment and serve as a guide in formulating the policy or attitude to be taken towards the particular debtor. In many a case complete knowledge of the debtor's condition has enabled the collection department to render genuine assistance in straightening out his affairs and prevented recourse to the bankruptcy courts, while at the same time making a lifelong friend and loyal customer.

Debt a Fixed Obligation.—In no collection letters should the debtor be permitted to escape sight of the fact that a debt is a plain business obligation that one cannot evade and stay in business. The moment the bars are let down and the slightest intimation is made that you fear, for some reason or other he will not pay, at that very point all pressure is lost and the task is made increasingly difficult.

There should be nothing that could be construed as intimating that the debtor, because he is a debtor, is consequently dishonest or a criminal. Firmness mixed with a spirit of helpfulness is the proper attitude to be assumed. Then you will be accorded respect and in all probabilities get your money sooner than by resorting to rough tactics.

Don't Plead Need of Funds.—Always remember that the fact that an account is overdue is sufficient reason for your efforts to collect it. One of the most common mistakes is to plead the need of funds as a reason why an overdue account should be paid. Even if that be true, it does not add anything to the obligation of the debtor. He owes the house money that was not paid according to the terms of sale, and the creditor is not called upon to explain or furnish any particular reason for expecting a business engagement to be lived up to.

Furthermore it furnishes an unenviable insight into the financial condition of the creditor and possibly discloses the fact that there is some skating on very thin ice, which carries to many the thought that if the creditor should succumb, the debt might be deferred for a long time or at least that the same excuse of lack of funds will suffice for the present.

Payment As Facilitating Service.—In the readjustment period following the World War many of the largest concerns found themselves in the position of having to appeal to their customers to do all within their power to keep their remittances punctual and even to take their cash discounts wherever possible, and put it on the broad and dignified ground that in so doing they were in reality making it possible for the big concern to be able to continue to meet their merchandise requirements fully, economically and promptly. The letter to all accounts over 30 days old sent by one concern was as follows:

"We are sending you statement showing amount of your account, according to our ledger, which has passed maturity on the basis of our regular terms, which require settlement within 30 days from date of shipment.

"We are obliged to obtain the use of all available funds under present conditions in order to take care of our customers' requirements and secure material which must be purchased on a cash basis to insure satisfactory service in connection with their orders. We are therefore soliciting their help in taking advantage of our discount terms, whenever possible, which will be a source of much additional profit to them as well as of valuable assistance to us in continuing to provide for their requirements.

"You can assist us by making settlements promptly and taking advantage of cash discount of 2% for payment in 10 days from date of shipment whenever it is possible to do so."

If this letter did not bring payment of the account and in the interim another order was received, that fact was taken advantage of as the occasion of, a further letter vaguely intimating that shipment of the goods might be withheld pending payment of the past due account, and repeating the mutual advantage in making all settlements as they matured. This letter was as follows:

"About the first of the month we sent you a statement showing the amount of your account outstanding on our books which was then overdue as being the sum of $124.56.

"We have been expecting a remittance from you, and possibly it is already on the way.

"As we stated in our former letter we are depending upon the assistance of all of our customers at this time to enable us to continue to make purchases of raw materials on a cash basis to protect their further needs. We are therefor making special request that customers will arrange to take advantage of the 2% cash discount for payment within 10 days from date of invoice, and in any event to let us have remittance within the 30 day period in accordance with our terms of sale.

"It causes delay whenever an order is with-drawn from the regular routine on account of an invoice which is overdue. We are in need of all available funds in order to give service to our customers which will be reasonably satisfactory and cannot carry any extended accommodations on open account.

"If you have already remitted, please pardon our bringing this matter again to your attention, as, with the many thousands of accounts on our come slow in his payments, not through neglect, but because of conditions he does not seem able to control, until he seems headed right for the rocks of bankruptcy. To press him ; to insist upon payment with the alternative of instant suit, and then to follow the threat with suit, in most cases means the loss of the account, the goods and the customer.

When the account has reached the stage where in the usual course of procedure, the final letter before instituting suit would be sent, that step should never be taken without first finding out all there is to learn about the customer, his record, his condition, his ability and just what it is that has brought him to such a situation. Then it is where the information that should be in the files of the credit department come in handy. If they are not sufficient, a thorough investigation of the case should be made, and if the circumstances warrant it — and most generally they do — aid should be given in the way of extensions, payments being spread over a given period, and even going to the length of seeing other creditors and books, it is difficult to avoid an occasional request for remittance which has been sent to us, but has not reached our books for credit."

Follow Collections Closely.—One of the cardinal principles of a good collection department is to keep after delinquent accounts right from their dates of maturity. If this is not done, the house is put down as an easy going institution and the terms of sale, such as "2 %--10 days; 30 days net," become a meaningless phrase. Whatever be the terms, the trade should be taught to under-stand that they mean exactly what they say, and that they constitute just as much a part of the contract of sale as the merchandise and the price. By this method, customers soon are brought to a realization that an announced rule or policy of the house means just what it says. But there is another side to the matter and that is that it is unfair to prompt paying customers to permit others to withhold payment for indefinite periods. No business concern can afford to play favorites, and uniformity of treatment is a business requisite. Dilatory tactics in collections come pretty close, in reality, to holding part of one's customers to certain terms of payment, while granting others a longer credit, and without an justifiable reason.

Extensions of Credit.—Following collections closely does not mean that extensions of credit should not be given in special cases. On the contrary, the exceptions prove the rule. Every once in a while some honest, industrious, hard working customer will get into financial difficulties, become slow in his payments, not through neglect, but because of conditions he does not seem able to control, until he seems headed right for the rocks of bankruptcy. To press him ; to insist upon payment with the alternative of instant suit, and then to follow the threat with suit, in most cases means the loss of the account, the goods and the customer.

When the account has reached the stage where in the usual course of procedure, the final letter before instituting suit would be sent, that step should never be taken without first finding out all there is to learn about the customer, his record, his condition, his ability and just what it is that has brought him to such a situation. Then it is where the information that should be in the files of the credit department come in handy. If they are not sufficient, a thorough investigation of the case should be made, and if the circumstances warrant it — and most generally they do — aid should be given in the way of extensions, payments being spread over a given period, and even going to the length of seeing other creditors and thus together pulling the customer out of the mire and setting his feet once more upon the solid ground.

In such a case the debtor should be written in somewhat the following way:

We believe we understand the conditions that have made it impossible for you to take care of your past due accounts with us, and in appreciation of the long and satisfactory dealings between us, it affords us a real pleasure in extending to you any reasonable accommodation that will enable you to work out your present problems.

Undoubtedly you could arrange to take care of our account if it were spread over a number of months. Will you tell us what sum you could pay us on this basis? If there are any other creditors you cannot induce to grant you like terms, let us know who they are and the amounts due each, and we will try and assist you in that regard.

If, on such a basis, you can arrange to take care of these monthly payments, we will be pleased to ship you each month such goods as you may require, up to a reasonable amount, same to be paid for on our regular terms.

Such an arrangement would impose no hard-ship and would enable both of us to continue our long-standing business relations in perfect accord. Let us hear from you promptly.

Notes—(1) The spirit of helpfulness pervades the entire letter, which opens with the statement that the creditor understands the debtor's situation and removes any intimation that the creditor feels that the delay has been willful.

(2) In such a situation any debtor would rejoice that his creditor remembered the length of time when obligations were promptly met, and putting the granting of an extension on that basis always engenders kindly feelings.

(3) Spreading the account over a number of months and leaving it up to the debtor to suggest what those payments can be evidences the real spirit of helpfulness back of the letter, which is strengthened by the offer to try to induce any pressing creditors to adopt similar methods.

(4) Equally as important to the debtor is the offer of additional goods on regular terms, provided the monthly payments are promptly met, and the chances are good that the creditor will lose nothing by such an offer and its acceptance, as the additional monthly shipments can be stopped at any time the payments are not made according to the arrangement.

(5) The expressed desire that the present difficulty may not interfere with the continuance of business relations clinches sense of service on the creditor's part, and there is not one debtor out of a hundred who would not give to such a creditor every last dollar's worth of trade possible. That's the way it works out.

Follow-Ups. — Every collection department should be provided with a complete and effective series of follow-up letters. Experience has demonstrated that a series of four, friendly yet firm, and increasing in insistance as they progress, will either collect the account, bring about an adjust-ment or make plain that the case is one for the attorneys or a collection agency. To prolong the Series is to weaken the case, as the length of time that must necessarily elapse between the first and the fourth will give the debtor ample opportunity to take some steps towards liquidation of the account.

The First Letter. In the first letter the tone should be friendly, calling the attention of the debtor to the fact that the account is past due. The letter should assume that it has been but a matter of oversight that remittance has not been forwarded, and that to be reminded of the delay is enough. Coupled with this many collection managers add a little sales talk regarding some line of goods that should be of interest to the customer, or some personal reference that is intended to take off any sharp edge or resentment that might be felt because a dunning letter had been sent.

Such a letter might be worded as follows :

While making a little excursion through the books yesterday, I noticed that your April ac-count had not been paid. Your remittances have been so prompt that I simply charged it to the pressure of other matters that had caused it to slip your mind, so this is just a reminder. If you can, I would like to have the remittance not later than the 25th.

Mr. Jones has just called my attention to a very fine line of men's handkerchiefs, with the narrow hemstitched border, to retail at 25c, and which he says we will price at $1.80 the dozen. These goods have just come in and it has been a long time since we have been privileged to offer anything like them at anything near the price. If your stock will need replenishing in the near future, I should advise your securing as many as you will need. They have not yet been offered to the trade, so an early order will enable you to get some. A sample for the asking.

Notes—(1) There is nothing stiff or formal in this letter, nothing to give offense. On the contrary, a cordial tone pervades the entire letter, different from that which the debtor undoubtedly expected.

(2) The tip as to the new goods, exceptionally low priced and consequently with a liberal margin of profit, shows that the house still wants to do business with him and is not simply hungry for money.

(3) But the important thing from the standpoint of the creditor is that the customer will hardly have the temerity to order the new goods without paying the past due account or at least a part of it, and give a good reason why all is not sent. This is the play on human nature that makes some letter peculiarly successful, while others fall down.

The Second Letter.—If the first letter does not bring either the remittance or a reply, the second should be sent not later than ten days after the first. It should be a little firmer than the first and so phrased as to call for some acknowledgment at least. The following would be an appropriate form :

You cannot be unmindful that your account is now considerably overdue, and because of that, I am at a loss to understand why we have not had an acknowledgment of our letter of the 12th.

A duplicate statement of your account is en-closed, and I would ask you to go over it carefully and see if it corresponds with your records, so that if there is any error, it may be adjusted promptly.

Should it be correct, your remittance by return mail will be appreciated.

What did you think about those men's handkerchiefs at $1.80 the dozen to sell at 25c that I mentioned in my former letter? The trade is taking them eagerly. You should find them rapid sellers considering quality and retail price.

Notes—(1) The opening paragraph shows that the creditor has not been accorded the business courtesy of a reply at least to his friendly, considerate letter, which cannot be denied, as well as the statement that the fact that the account is still unpaid must now be well impressed upon the debtor.

(2) The enclosing of the duplicate statement of the ac-count has a distinct legal significance. The law is that where an account is rendered and the debtor is asked or given the opportunity to object to it in any particular, his silence becomes his assent to its correctness, and in law the account becomes an "account stated" which means that it is not open to question, so that in bringing suit on the account, such suit can be brought not upon an open account, but on an "account stated."

(3) The third paragraph logically follows the second in that it asks that if there be no error in the statement, and therefore no reason for delay in payment, that same be made by return mail.

(4) The closing paragraph still clings to the olive branch of continued patronage by referring to the special offer of men's hemstitched handkerchiefs, and adds that other customers are taking them up eagerly. If this letter brings no reply, it would be useless to include any sales talk in any subsequent Ietters.

The Third Letter.—Patience is now ceasing to be a virtue, and the third letter should assume a somewhat stern attitude, indicating that indulgence is about at an end. Its form might be:

Twice your attention has been called to the fact that your April account has remained unpaid, and for some reason which we cannot fathom, you have elected to ignore both communications.

You are familiar with our terms of sale, and they constitute just as much a part of the contract of purchase as the goods themselves. It is not fair either to our trade or ourselves to allow extensions beyond the 30 day period except by special agreement, and then only upon the application of the customer.

We do not ask the impossible, but if you can-not pay the entire amount of $123.65 cannot you send at least half of it? Should we fail to hear from you by the 3rd, we will draw on you for the entire amount.

Notes-(1) From the tone of this letter the customer knows that silence cannot be continued without some positive action being taken by the creditor.

(2) The reference to the terms of sale and the fact that in permitting one customer to take a longer time to settle than others, an injustice is done to those who pay promptly, brings the situation home forcibly.

(3) The last considerate word is that if the whole amount cannot be paid at once that at least half should be sent, and the statement that failing to respond, draft would be drawn for the full amount, shows that the creditor means business.

Salesman's Letter.—Sometimes a personal let-ter from the salesman calling on the customer, in the way of a friendly tip that he has learned that the account being so long overdue, the house is going to draw for the amount of the bill, and urging that the amount be promptly remitted to avoid knowledge of the situation coming to the attention of the local bank, will do what the house letters have failed to accomplish. Such a letter would read as follows :

Dear Mr. Brown :

I have just learned from the cashier that he has been instructed to draw on you through the First National Bank of your city for the amount of your unpaid April account, and I thought I would tip you off that such action was to be taken next Tuesday.

I know you would prefer not to have the house take this action, so I am writing you in advance.

I am sorry your affairs have made it necessary for you to hold up this account. Why don't you write the house and let them know the situation? I know them well enough to assure you that evidence of a desire to pay will go a long ways with them, but they can't spell any such desire on your part when you don't even reply to their letters. I hate to lose you as a customer. Let's try and fix things up. I am sure the goods and our service have been all right. Drop me a line personally, if you prefer, and I'll take it up with the powers that be.

Notes-(1) The customer already having received the third letter stating that he would be drawn on if he did not make payment or some arrangement to take care of the account, knows when he receives the salesman's letter that the house meant just what it said, and will, in most cases, appreciate the salesman's interest.

(2) In the third paragraph the salesman shows a real sympathy for the customer, assuming that the delay has been caused by conditions beyond his control and not from neglect and urges that he tell the facts. This carries an inference that the house may be in a position to assist him straighten things out. The suggestion that the letter may be addressed to the salesman personally carries out the friendly, intercessory spirit that usually brings a response, for in most cases the customers' personal acquaintance with the house is limited to the salesman who calls on him, and whom he soon comes to look upon as his friend at court. This letter has been found most effective, and where it fails, there is no course left but the resort to the severer measures of the law.

The Fourth Letter.—Usually the fourth and last letter of the series is stern and calls for nothing more than a notice that legal proceedings will now be instituted. It may be as follows :

You have chosen to ignore our three requests for payment of your account and declined to honor our draft.

There is but one inference left; that you are determined to force us to bring suit to recover the amount, and as much as we dislike taking such a course, we have no other alternative.

This is to notify you that if payment in full is not in our hands by Monday of next week, the claim will then be placed with our attorneys for suit, without further advices from us.

Notes—(l) The first paragraph should refer to the various letters and efforts to secure payment and the studied neglect of the customer to reply.

(2) The inference from such a course is next given and the challenge is accepted.

(3) A fourth opportunity to pay is given and the state-ment is made that the next step will be taken by the attorneys.

(4) If the salesman's letter has been sent, there is no rea-son to refer to it, as it is not supposed to be a house letter, but a voluntary, personal letter.

Some concerns seek in the fourth letter to impress upon the delinquent customer the damage to his credit standing in the trade and with the commercial agencies in the event of suit, in somewhat the following manner:

While your studied neglect of all our efforts to induce you to settle your account with us more than justifies our taking the severest measures, we would spare you, if possible, the reflection on your credit standing and reputation in the trade that would follow a suit to recover our account.

Accordingly, we will give you, one last opportunity to make settlement direct with us. If by Monday of next week we do not receive at least a substantial payment on account and you do not at the same tithe make satisfactory arrangements for the payment of the balance, we shall, without further notice, place the account with our attorneys with the instructions to take whatever steps they deem necessary to enforce payment.

The Fifth Slip.—At the expiration of the week if the account has not been paid, or the customer has not made some response indicative of a desire to make a settlement, the draft is promptly sent forward, and the fifth slip is attached to another copy of the statement.

Again there is the notice that the house expects the draft to be honored.

The Sixth Slip.—This completes the series. It presupposes that up to this time the customer has ignored all communications from the house and has also failed to honor the draft. The slip refers to the attitude of the customer as one of direct refusal to pay what is due, and not of mere delay, for refusal is the term for a complete ignoring of a series of communications regarding payment of a just debt. It takes the further and logical position that the attitude of the customer has forced the house to abandon its own efforts to make the collection and compelled them to resort to the courts. Still there is another week's respite given, within which the customer may yet make direct settlement. If that is not done, then he is advised that the account will immediately be placed with the mercantile agency's attorneys for suit or such other action as they may deem advisable. The reference to the mercantile agency's attorneys carries with it the implication that the customer's credit rating will be bound to suffer through such action, and in most cases brings the money. This last slip is as follows :

The house uses the first three slips in the series in practically every case, and is governed by the circumstances as they develop as to the remaining ones.

Stirring Up Delinquents.—One large publishing house after trying out several letters to stir up delinquent accounts, found that the following one brought in more cash, more agreements to make periodical payments, than any of the others:

It is surprising to note how a number of our customers who think they are a little hard pressed for cash, will wait and wait, until expensive methods are employed to liquidate their account, whereas a prompt response to a statement with a check to apply, if unable to pay in full, coupled with a promise to send the balance on a certain schedule, would work wonders in the financial world.

Take your own case. We have sent you several statements since June 30. It is not our desire to force the collection of your account—it is not our intention to create any kind of a hardship or expense to you it is not our desire to add to the present existing pressure of credit conditions. It is our desire, however, to say that we are now justified in expecting you to present a plan of settlement which we can consistently accept, and we believe that eight days is sufficient time in which to submit your proposition.

P. S. None of us can afford to overlook the need of quick turnovers ; active circulation of funds —even though in small amounts—and a clean, conservative stock. We feel encouraged by the fact that the country is gradually convalescing from a severe attack of Mental Influenza and are hopeful of seeing the needed larger production and outlet in all lines.

Notes—(1) The impersonal reference to the attitude of many customers of the house and what, on the one hand, that involves, while, on the other, the general monetary relief that a prompt remittance 9f even small amounts would bring, cannot fail to make a decided impression on the delinquent customer, who will instantly recognize the fact that he falls within that category.

(2) The personal application follows in the second para-graph, where the fact of delinquency is clearly, yet kindly, brought home. All sting is taken out by the denial of any desire to embarrass the customer, and the statement that some steps must be taken to reduce the indebtedness, and within a fixed time, indicate that further delay may be fraught with danger.

(3) The postscript tends to restore genial feelings and suggests a brighter outlook for the future. This letter is to be commended.

Collection By Telegraph. Mail takes its regular course. It is the commonplace in business.

But the telegram brooks no interference—no de-lay. It carries its own assumption of importance and breaks in, even in the midst of a conference.. Hence collection departments make use of it to give the added touch of importance to the urge to pay. Both regular fast messages and night letters are employed by many concerns and with results that more than justify the expense.

Obviously resort to the telegraph should not be had until the series of collection letters has about run its course, and the wire should be the last act before placing the account with the attorneys or a collection agency. A night letter that has been successfully used in this way reads :

You have had more than a reasonable opportunity to pay balance of one hundred dollars. We do not feel any further extension is justified. Tele-graph immediately and state what you will do. If no reply received, legal proceedings will be commenced for amount and costs.

Specimen Telegrams. The following telegrams are short and should be sent as fast day messages, as that gives an impression of greater urgency than night letters :

1. Your old account must be paid. Unwilling to wait longer.

2. Our patience is exhausted. Must have ac-count paid at once.

3. Will draw on you Monday unless we receive remittance.

4. Very important we receive remittance from you immediately.

5. Your delay in remitting very annoying. Your prompt attention requested.

6. Expect payment on account without further delay. Don't disappoint.

7. Regret cannot extend further credit until ac-count is paid.

8. Why don't you answer our letters ? Account must be settled forthwith.

9. Why have you not paid December invoices ? Remittance greatly appreciated.

10. Your remittance must be here by the 15th. Patience exhausted. Answer.

11. Failure to remit this week starts legal proceedings.

12. Know no reason for your delay in paying. Remit immediately.

Telegrams To City Trade.--The telegram has also made good as a collection medium in city accounts. One house uses this form on local delinquents, and sends it collect in all instances:

Kindly call at three o'clock for interview with Mr. Thomas. Important.

This telegram is sent out early in the morning, so there will be ample time for the customer to make his arrangements to keep the appointment that has been made for him. The house reports that it is rarely a customer refuses to pay the charges, but does pay the bill, as well.

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