What Are The Different Types Of Debt Collection Letters?

The process of recovering a debt can seem a little confusing, especially if you’ve never done it before. Knowing what you can and can’t do outside sending a few emails, or what step you’re meant to take next, is difficult. In most cases the next step is to send a debt collection letter. But did you know there are a few different types of those, just to add to the confusion?

What Is A Debt Collection Letter?

Debt collection letters are a quick way to turn old debts into paid invoices. They notify the debtor that they owe you money, and what will happen if the debt isn’t repaid within a set period of time. There are a couple of different debt collection letters, which can be sent out in sequence as the debt gets older.  You can choose to use all of these or just one of them, depending on the reaction that you get or how quickly you want this step to take.  This not only helps prompt customers into paying you, but it provides a paper trail if you need to take things to court.

The Types Of Debt Collection Letters

You should have been communicating with your clients regularly, especially when an invoice becomes overdue. At this point, a friendly phone call or email can do a lot of good, and can often prompt payment if it was a genuine slip of the mind or admin error. If you get no response, then you can consider sending debt collection letters. Here are examples of the letters that can be sent in a specific order but you can just send some of these or even just go straight to the Letter Before Action/Letter of Claim.

Initial Letter: The first letter you send out, reminding the debtor that they owe you money, and what options they have to resolve the outstanding debt without escalating things. It’s often sent out 14 days after the debt’s original due date, and while important to be sent on time, it doesn’t need to be written formally.

Inquiry Letter: If you’re concerned about the damage chasing a debt could do to your relationship with customers, then an inquiry letter can be a good next step. You send this if there has been no response to previous reminders, enquiring after them and keeping the tone neutral and informal.

Appeal Collection Letter: This is the next letter in the set, and should inform the client of the consequences of not responding to or paying the outstanding debt. This might include a written notice that further steps are being taken. The debtor should know what will happen if the letter is ignored, and that legal advice will be sought.

Final Demand: The final demand is essentially an ultimatum to the debtor – either they pay the outstanding debt, or the matter will be passed to a debt recovery agent/solicitor within a set period of time. The tone of this letter tends to be much more formal and to the point, to emphasise the seriousness of the issue.

Letter Before Action/Letter of Claim: This is the last letter that will be sent before you commence court action. It informs the debtor that legal proceedings will be issued against them if they do not make payment. The Letter Before Action/Letter of Claim should include all information regarding the debt.  This includes when/how the debt arose, when the goods or services were delivered, how much the debt is, when payment was due and details of any interest or costs being applied, together with the terms and conditions/statute under which these are being claimed. You need to be careful with this letter, as it needs to be compliant with the law.

What To Consider Before Sending Debt Collection Letters

Before you send a debt collection letter, you need to assess each situation thoroughly to decide if this is the best course of action, or if another approach would be more effective. You should start by reviewing the history of your interactions with the debtor. Any part defaults, what the reasons were and your communications about it. Understanding the context of the debt can influence how you approach the situation.

Next, evaluate the size of the debt owed and the impact it will have on your business. The cost of pursuing legal action might outweigh the benefits of pursuing smaller debts – in which case you might want to look at alternative dispute resolution methods, like mediation. Most importantly, make sure you seek the advice of a debt collection professional.

At Debtcol, we provide debt recovery and dispute resolution solutions that are tailored to your needs. Whether you’re trying to collect a specific, troublesome non-payment, or you’re looking for more efficient ways to recover multiple late payments. You can count on the personal attention of an assertive but respectful and courteous team who are always acting in your best interests. If you’d like to know more, just get in touch with the team today.