Functions of A Debt Collection Letter

Also referred to as a demand letter, a debt collection letter is an official notification sent in writing by a lender, informing a debtor of his/her due payments. A debt collection letter serves a wide variety of purposes. Below are some of the said purposes.

Remind Debtors of an Outstanding Debt

A debt collection letter’s primary objective is to inform a customer/debtor that his/her payment is overdue. The letter indicates when the payment was initially due. It also urges the debtor to clear the amount before legal action is commenced.

Commence Payment Negotiations

A debt collection letter also serves as a friendly invitation to the debtor to commence a negotiation process formally. Basically, the letter informs the debtor that he/she should develop a new payment plan that both parties will find acceptable.

Initiate Legal Debt Recovery Process

Legally, creditors can’t take over their debtors’ assets without sending out debt collection letters to their debtors. They can only take action if their letters are met with no response. This being the case, it’s safe to say that debt collection letters are tools used by creditors to initiate legal debt recovery processes.

Types of Debt Collection Letters

Before taking up legal action, there are a few notices that you must send to the individual that owes you. It’s worth mentioning that these notices are all types of debt collection letters. Here are the said notices.

Standard Reminder Letter

The standard reminder letter is the first notice a creditor usually sends to a debtor who defaults on payment. It is usually written in a sympathetic and friendly tone. In most cases, a reminder letter is sent after fourteen days. However, it can be sent after a longer period depending on the debtor’s relationship with the creditor.

Inquiry Letter

If the debtor fails to respond to the reminder letter, the next notice is usually an inquiry letter. An inquiry letter is also written in a sympathetic and friendly tone. It asks the debtor if he/she received your first notice. It also highlights a creditor’s willingness to help the debtor out in case the debtor is facing financial challenges.

Appeal Letter

Unlike its predecessors, an appeal letter is usually written in an aggressive tone. It highlights the urgency of the situation. Although it’s meant to be pretty aggressive, you should maintain fairness when writing an appeal letter.

Warning Letter

If your debtor fails to respond to all the notices you’ve sent him/her, you should write him/her a warning letter. Also referred to as the ultimatum collection letter, this letter indicates the legal actions you intend to take to recover your money.

How To Write An Effective Debt Collection Letter

When writing a debt collection letter, it’s important that you follow certain guidelines. If you fail to follow these guidelines, you may ruin the business relationship you have with your client. You may also find yourself in deep legal trouble. To avoid any of the above-mentioned states, here are some tips you should follow if you’d like to write an effective debt collection letter.

Consult an Expert

Before penning down a debt collection letter, it’s in your best interest to contact a well-trained and experienced debt recovery agent. Using his/her immense training and broad knowledge, your debt recovery agent-of-choice can assist you in coming up with an efficient demand letter.

Understand the Legal Regulations You Need to Adhere To

All types of debt collection letters must adhere to the Fair Debt Collection Practices Act’s legal regulations. This being the case, to avoid contravening any of the rules stated in the act, you must read and understand the act.

Let Your Letter Be Brief

An effective debt collection letter is usually precise and straightforward. Make your letter as friendly as possible. However, don’t beat around the bush.

Know Everything You Need to Include

It’s essential to note that when writing a debt collection letter, there are some details you have to include. They include your name (name of the creditor), the amount you’re owed, and action you require to be taken, and additional costs (if any). In case it’s a demand letter, you must state the deadline and the action you intend to take in case he/she doesn’t make the payment by then.