Serving small business since 1990
Toll Free: 1.800.201.2274

Accounts Receivable Collection Letters

Accounts Receivable Collection Letters

Accounts Receivable Collection Letters In 2020

Everything Changes Everything Stay the Same

Accounts receivable collections has changed in 2020, and the use of accounts receivable collection letters has changed as well. What hasn’t changed is the need for a well thought out accounts receivable collection strategy when customers don’t pay as agreed.

Back in 2011, I wrote: (This is the only sentence I could save from 2, 2011 posts about collection letters!)  In-house collection letters can and should be a component of any complete accounts receivable management system. That remains true today, however, when and how we use them has changed.

Two Kinds of Collection Letters

There are two kinds of collection letters you’ll use in business. There are first-party or in-house collection letters and third-party or collection agency letters.

First-party letters are written and sent by the 1st party, typically you or your business, to the second party, your customer or debtor, while a collection agency sends third-party letters again to the second party your customer.

When to use In-House Collection Letters

Use an in-house collection letter when your customer doesn’t respond to email or telephone calls and before resorting to an outside collection agency.

Do not use collection letters instead of timely and appropriate communication with your customers! In other words, don’t watch the invoice age for 90 days then send a collection letter.

Collection letters should be the final, not the first step in your Accounts Receivable Collection Strategy and will typically precede the use of outside collections. 

If you Google Accounts Receivable Collection Letters you’ll quickly find advice telling you to send a collection letter as soon as your invoice goes past due – I strongly disagree and here’s why.

  • Typically only about 30% of your customer are going to pay right on time.  Another 30% will pay within 10 to 30 days beyond terms.  The other 40% are the reason accounts receivable departments have collectors! Contacting customers who’ve allowed invoices to age beyond terms is the work of the AR department – (chop wood, carry water). 
  • Sending a series of collection letters as the first step is, in my opinion, a way of avoiding the, for some, unpleasant work of calling the customer’s accounts payable department.
  • Collection letters are time consuming and, expensive and they annoy customers. It’s very likely all you’ll need to do is send an invoice copy to the right person, but you’ll need to make the call (or send an email) to find out!

When to Use Collection Agency Letters

Use an outside collection agency when all else fails. That said, Einstein’s definition of insanity, doing the same thing over and over while expecting a different result, comes to mind.  

Again, you’ll want to refer to your collection policy here but, here are two strategies that don’t work.  

  1. Sending emails and leaving unanswered voice mails for weeks or months.  
  2. Leave a voice mail, send an email, then do nothing for weeks or months.

Followed by submitting to a collection agency and being both surprised and disgruntled when the agency can’t collect either.  

to be continued… I’m a very slow writer do come back tonight or tomorrow

Collection Agency Letters

Leave a Reply

0