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Collection letter for past due invoices for Personnel

hi this is tim yoder with fit small business and today i'm going to teach you about how to write a collection letter and in fact we're going to go over a series of four collection letters that i recommend you send your slow paying customers so let's get started so the basics of your collection letters first of all these need to be formal business correspondence so as such they need to have all parties involved obviously you need to have a return address on the letter and you need to have your customers address on the letter so a collection letter is not a sticky note that you put on your customers on your customers door right so we're talking about with collection letters formal business correspondence so treat them as such the objective of the letter needs to be very clearly stated and this is true of all business correspondence so in the last paragraph of the letter you need to very clearly state what you want your customer to do so please pay this amount by this date by sending a check to this address or by you know logging in and paying by credit card however you want them to pay but make it crystal clear in that last paragraph what you expect the customer to do your collection letters need to be a series of letters so it's not just one collection letter now obviously if they pay after the first one that's fantastic but as long as they continue to not pay you need to send a series of four collection letters and each one will get more serious start to be better documentation for possible legal proceedings etc each of the collection letters needs to reference the collection letter that was previously sent so again you're establishing that you've sent them a series of collection letters that you can refer to in any possible legal action the language of the collection letters now this is the hard part sometimes you need to to get a balance of professional language but it also needs to be serious right i mean you need them to pay you so but obviously you know no personal attacks no name calling you know anything like that so it needs to be very professionally written if you've come across this video on youtube i've provided a link in the description to the article that goes with this video and that article actually has four templates one for each of these four collection letters so those templates will give you a very good idea of what kind of professional language to use so i encourage you to check that out okay so a few do's and don'ts of writing a collection letter so obviously keep it professional assume the customer will pay and this is going to have a lot to do with the tone of the letter so in your mind when you're writing the letter assume that the customer is going to pay and that's going to be reflected in the tone of the letter which is a great thing so you should call the customer before sending this first letter now one of the main purposes of this initial phone call is to make sure that your customer agrees that they owe you so you don't want sending collection letters if the customer is disputing the amount that they owe you so if they're not happy with the service or product you provided then that's what you need to find out in that first phone call and you need to then resolve that before continuing on into collection letters now that doesn't mean the customer is always right but you need to address their concerns best you can you need to come to a conclusion that well they may not think they owe me but they do owe me i've addressed all of their concerns and i feel they owe me money then you continue on to the collection process but make sure you understand all of their concerns before doing that don't jump directly into the into the collection process call them try to understand what's happening you might also send them an email so anytime you onboard a customer i highly recommend find out how they like to communicate not everybody likes phone calls in fact a lot of people don't like phone calls anymore so do they prefer email do they prefer text message find out how they like to communicate and then you want to communicate with them in that method prior to sending this first collection letter again establish whether they are happy with the product and service and whether they agree that they owe you so things not to use so obviously again we talked about professional language don't use harsh words don't harass the customers now this says don't send text messages now a text message might be sent instead of an email or a phone call what this means is don't send text messages in lieu of a collection letter they are not a replacement for a collection letter again a collection letter has to be a professional business correspondence because again there's two purposes here the first purpose is to get them to pay you and hopefully that's what's going to happen but if they don't pay you you've established this line of correspondence that you can refer to in trying to collect the debt through court or other means i don't ever recommend communicating with your clients through social media links it's just kind of very unprofessional i would keep the correspondence directly to them through again telephone email and texts so let's talk about these four collection letters um the first letter is going to be sent after you contact them by email or telephone again you're with this first contact with the telephone or email you're establishing that in fact the debt does exist this first letter has to be sent no later than 14 days after the date of the invoice now this means that initial phone call has to be very quick right you need to give them time to respond to that initial phone call before sending the letter so my recommendation is as soon as that invoice goes late a day or two late get on the phone talk to the customer determine whether they're unhappy if that's that why they didn't pay are they unhappy what can you do to make them happy or you know if you deal with them and eventually it becomes they're just not going to be happy but they owe you money then you're going to go into the collection process but stay on top of it so i actually have some experience with this i was a bookkeeper for a couple years for a roofing company and part of the job that i just really disliked was this whole collection process but the main advice i would give you from that experience is stay on top of it as soon as that invoice is late you need to place a phone call try to determine if something's wrong or if they just forgot to pay once that you know give them five or six days to respond to that phone call with a payment if that doesn't happen then you need to get out this first letter need to get out quickly again within 14 days of that date of invoice so debt collection is such an unpleasant task that it's very easy to just let it fester right you know don't don't wait 30 days before you make that first phone call you've got to stay on top of it again that is my best advice for collecting debts stay on top of it don't let the problem fester okay the second letter before we send the second letter i'd recommend a phone call again confirm they got that first letter see what they're thinking you know why haven't you paid me if they don't respond to that first letter then you need to send the second letter in that letter i would document that this is the second letter we've already sent you a first letter again you're establishing kind of a paper trail that you can use in any collection process okay if they haven't paid by the second letter then we're going to have to send them a third letter again i would try to reach them via telephone or maybe email first to uh to touch base see what's happening why haven't they paid you um and if they don't respond to that second letter then you're gonna need to send this third letter the third letter is getting a lot more serious by the time you get the third letter there's a pretty good chance you're not going to get paid at least easily voluntarily so the third letter is going to be a little bit more serious and so you're going to need to send it certified mail so now we need to not only kind of establish this paper trail but we need to have proof have evidence that they in fact did receive this third letter and finally the fourth letter the fourth letter you're probably not going to get paid at this point so really the fourth letter is to basically tell the customer what's going to happen if they don't pay so before writing this fourth letter you need to decide what you're going to do are you going to seek legal action in court um now with me i worked for a roofing company so we had the option of putting a lien on the property that we repaired so that was a very nice option for us and so a lot of times the fourth letter would just say you haven't paid us please do so or we're going to place a lien on your property by this date so again be very specific but we had that option so that was very nice if you're in a business where you can't place a lien on property then you're gonna have to look for other options say you know if you don't pay us by this amount we will be filing a claim in small cl you know we'll be filing a case in small claims court or we'll be turning it over to a debt collector which could adversely affect your credit rating so spell out exactly what's going to happen in this fourth letter obviously you're going to have to be assertive but again professional no personal attacks be very clear about what's going to happen if they don't pay you okay so some of the options if they don't pay us you can hire a collection agency so with a collection agency they're going to try to collect the debt for you if they do collect the debt they're going to charge you about 25 to 45 of that amount collected so that is an option um make sure if you do this you no longer want this customer right perhaps if it's a if it's a good customer and they've just disagreed with this particular bill for one reason or other maybe it's not worth sacrificing the relationship with that customer because when you go to a debt collection agency you're sacrificing that customer they're no longer a customer and maybe that's fine right if this was a if this was a legitimate debt where they didn't even argue about the debt they just didn't want to pay you well then you don't really want them as a customer but if it's a good customer and and there's just this disagreement and they've never paid you maybe you just want to consider writing it off without sacrificing that relationship with the customer so hiring a collection agency that certainly is a possibility another possibility is writing off the bad debt it's the easiest thing to do you won't waste time dealing with the collection agency if it's a very small amount this is probably what you should do and then finally if you do write off the debt let's talk briefly about the tax deduction so the tax deduction depends on your accounting method so if you're an accrual basis taxpayer that means you recognize revenue as soon as you send out that invoice right not when the customer pays so if you recognize revenue when you send out the invoice and it never gets paid then you can claim a bad debt deduction to offset that revenue because you never got paid however if you're a cash basis taxpayer you don't recognize revenue until the cash is received so with a bad debt you never received the cash you never recorded revenue so obviously you don't get an expense to offset that right you've never collected the cash there's never been any revenue there's nothing else to do so that's the collection process i hope this was helpful i hope i was able to use my couple years of experience with a with the roofing company i'm again very uncomfortable task unpleasant stay on top of it don't let it faster that's my best advice for you i'm tim yoder with fit small business and i hope this was helpful