Collecting on debts can be complicated. It is beneficial to have a few demand letter templates to reference as starting points. Tailor them to fit your particular situation, but keep in mind that you must file some claims within a specified period. Always seek the advice of an attorney to determine if the claim is valid, because you may not be able to collect the debt yourself as a small business owner.
The collection process begins with the customer’s invoice. Make sure to state your terms clearly so the customer knows precisely when and how much to make a payment, and where to mail the check or transfer the funds electronically. Ensure that your billings are sent out promptly, optimally the same day as shipment and that you have followed the customer’s directions for correct billing and shipping addresses. Due to their competitive nature, some industries do not follow up for 30–45 days after the deadline, thereby extending the terms. Large, influential companies stand a better chance of having customers adhere to their terms than a small business, one that is new in the market, or an existing company trying to expand its customer base.
Demand Letter Function
A debt collection letter keeps receivables flowing smoothly by notifying the debtor of a payment default, asking for a payment, and warning about future legal actions if the debt is not brought current. It is always sent via the mail or fax so the debt collection agency can use the letter as evidence that the debtor has been contacted, provided with notice of the past-due debt situation, and the procedures to follow to make a payment. The functions of a demand letter include:
- Starting the Negotiation Process: Sending a demand letter starts the process for a well-defined timeline of the situation for the courts, if required. It is also a way to carefully craft a friendly letter rather than issue a verbal threat. A calm demeanor should be observed throughout the debt collection letter.
- Establishing a Formal Request for Payment: After the debt collection letter attempts to courteously alert the consumer that they are late on their payments, you can become more serious and insistent that the debtor should take steps to make the payment quickly.
- Initiating a Legal Process: Finally, the debt collection letter can also make a demand on the debtor to either make a payment or set a timeline within which they should expect to make a payment. If the payment is not received, the debt collector sending the demand letter can then begin a more formal, legal process.
Collection practices should be flexible, but deciding when to start should be included as part of your business’ approved collection and credit policy. If your customer makes a commitment, make sure to note the amount and date on a payables calendar, and follow up with them if the payment does not arrive as promised. This is important because if the payment is not received and you do not notify the customer, they may believe that it’s not important and delay even longer. Also, allowing late payments to languish can disrupt cash flow and hurt your organization’s likelihood of success.
A debt collection or demand letter must be transparent and clearly state the name of the debtor. Also, it has to comply with official debt law groups including the Fair Debt Collection Practices Act (FDCPA). If any information, such as names or terms, is missing or misleading, it is considered a violation and breach of legal business practices. Also, they can be sent only to a debtor’s home address. Sending a demand letter to other places is considered inconvenient or unusual places as defined by the FDCPA. Debt collection letters can only be sent to those places with the debtor’s previous approval.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.