Collection Letters Get Through

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What are your chances of reaching a debtor on the phone first try? Just about nil, according to Joseph Volpe, president of Credit America, Inc. (Philadelphia).

"It takes about 4.3 phone calls to get through to the average debtor," he says. "But collection letters get through to the intended party, and provide debtors with a hard copy to which they can refer. If they don't, they're returned by the postal service."

Admittedly, Volpe is no disinterested observer of the relative merits of collection calls and collection letters. Credit America provide collection letter services for national and international clients. But he certainly has a point. With the increases in electronic mail and other technologies that serve to keep people from personally answering their phones, letters are regaining their important place in credit management's arsenal of collection tactics. The best collection letters (and collection letter series), advises Volpe, are:

Tactful and persistent. "The specific purpose of a collection letter is to advise the debtor that the account is in a delinquent status," he says, "and to gently remind the debtor that payment must be made quickly. If the account is in an early stage of delinquency, the debtor is approached in such a way as to suggest that the creditor understands that the delinquency is probably an oversight."
Short and to the point. "No more than one page is generally used," Volpe says, "unless supporting documentation (such as invoices) are sent. This information helps debtors to easily identify the service or merchandise they purchased. Letters also contain statements that the accounts are beyond the previously agreed terms. In addition, they contain amounts due and an indication as to when payment is expected. A statement might also be included that if payment has been made recently, then the letter should be disregarded."
Personalized. "Dear John" or "Dear Mrs. Alexander," he suggests, is much better than a cold and informal salutation. As well as being tactful, it suggests to the debtor that you know exactly who he or she is.

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And even the letter's signatory may be of strategic value. "Collection letters should definitely be signed by someone in the credit department," Volpe advises. "Initial letters, however, should never be signed by company officers, since it's better to use those people for later letters." In other words, save your big guns for a time when you need them most.

In addition, letters should advise the debtor that the creditor is well versed on the debtor's situation. "We let the debtor know that the creditor is regularly auditing his or her accounts," Volpe explains. "You might say that the most recent audit indicates an unacceptable delinquent balance."

Naturally, strong or threatening language should always be avoided. "That only leaves the debtor in an irritated state of mind," he notes, suggesting that such an approach may only encourage the debtor to become more obstinate. Early in the collection period, moreover, it still isn't clear that the delinquency is deliberate or that the debtor won't still pay.

"A midwestem fuel oil company told us that they've gotten no negative feedback or even a single customer complaint," Volpe says. "I think that shows how patience and diplomacy can pay off. They told us that their delinquent customers are now paying their bills on time and are still doing business with them."

Visuals and Enclosures
Even the best writing may need some extra help, which is why Volpe recommends various techniques that dress up the letters and command attention. "In many cases, bold letters or italicized print can be used to accentuate certain parts of the letter," he says. "Laser printers and recent computer technology can be used to enhance collection letters. Software is also available that can help with punctuation, spelling, and phrasing."

Volpe also endorses the use of return enclosures. "In some cases, tear-offs at the bottom of collection letters, along with a business reply envelope, can speed up payment."

Timing
Good timing is just as important as good writing, Volpe maintains. "The creditor should send letters as soon as the account becomes delinquent. Action should be taken by one or two weeks following the due date. The second letter should be sent two or three weeks later." To wait longer, Volpe suggests, could allow the debtor to forget. "Out of sight, out of mind," he says. More frequent letters, however, may cause unnecessary annoyance.

But collection letter writing, Volpe cautions, can only continue for so long. "At some point," he says, "it should be cut off. Some creditors continue sending letters beyond a point when they should stop. And while they may collect some money, the accounts they don't collect become more difficult to recover."

Volpe says that problem may stem from the debtor's impression that the creditor will do nothing more. "Letters should not be used after the account gets beyond 90 to 120 days past due," he says. "At that point, it's time to get off the horse and onto another one.

"One of our clients--a medical supply company in Reading, Pennsylvania--works their accounts until they're 75 days old. Then they turn their accounts over to us. They told us that although we predicted a 50% return in 28 days, it's been holding steady at 58.4% in 28 days."

Third-party intervention, of course, has a powerful psychological effect. When debtors realize that other forces are involved in the collection effort, they are more likely to cooperate. "In our case," says Volpe, "we often get between 18 and 20 percent returns on our first letter even after the creditor's efforts haven't worked."

Other Tactics
You can also increase impact by using other tactics in conjunction with letters. Volpe uses a mail-gram format as an attention-getting tool. "We use a format that we call 'Priority Communication,' which is sent through the mail," he says. "But it should be used at an early stage of delinquency."

What about registered or certified mail? Volpe advises against it. "That costs too much. The only time to use that is when you're going to go to court. You might use certified mail when someone claims they didn't get the statement. But then you can also fax it while you're on the phone with them."

General Tips
Here's a brief list of Joseph Volpe's tips on effective collection letters.

Keep your letters short, and get right to the point.
Avoid name-calling or libelous charges.
Address the letter to a responsible person.
Don't make threats.
Don't suggest legal action unless you intend to follow through.
Send your letters early and often.
Ask for a prompt response.
Indicate: (1) Amount of money sought (2) identity of creditor (3) amount of time the account is overdue, and (4) time when payment is expected.
Enclose supporting materials, such as invoice copies.
Change letters as needed. Early notices should be brief reminders. Later ones should seek reasons for payment delays. Later ones should get tougher.
Consider using emotional appeals. Appeal to the debtor's sense of honor and duty, for example.
Express regret more than anger in your final letters.
Close your letter with a specific call for action.
Try to individualize your letters. This lets debtors know that they're not just faces in the crowd.
Don't apologize for your request. That might imply that you have no right to collect.
Don't imply that you are desperate for the money and that you're in financial trouble. That might lead the debtor to believe that you're not financially prepared to pursue your claim.
Make your readers think. Get their minds working by saying, for example, that you fulfilled your end of the bargain, so why shouldn't they.
Don't be aggressive or negative. "Smile" in your letter; show the debtor that you're nice folks.
Don't be so nice that you send the wrong message. You don't want your debtor to think you're a pushover.
Be very definite about your intentions. Diplomatically make it clear that full payment is expected within a certain period of time.