12/1/08

If you have been in business for any amount of time at all, be it freelancing or running a larger operation, sooner or later you are bound to experience a deadbeat client and find the need to initiate the debt collection process.

Debt collection can be a tricky situation. If we send Louie with a baseball bat down to break their knuckles, in this litigious day and age, the deadbeat will just turn around and sue us for everything we have. Then again, we are not in business to just give away the store and on a personal level, cannot allow ourselves to be played for chumps.

Therefore, this article is dedicated to the art of the collection letter. May you never have to write one, but then if you never have to, it probably means you’re not doing much business in the first place, in which case you have bigger problems at hand.

The Art of the Collection Letter

OK, first off, this is a bit misleading because unfortunately when it comes to collecting from a deadbeat client, one collection letter does not usually do it, so this might be titled more appropriately – “The Art of the Debt Collection Letter Series.”

In this series of letters, each one will most always turn more serious in tone than the last while always maintaining an air of professionalism. (In other words, don’t let a deadbeat turn you into stress case! Keep it together!).

Please note: With each collection notice listed below, it is usually best to follow up with a phone call to make sure you are doing everything possible on your end to communicate with your client.

The First Notice:

The first notice you send to a client for collection of a past-due payment is usually an email and should always read more like a friendly, light communication simply reminding them that you are hoping to receive payment soon and to please make their account current. This notice should be sent usually no more than a couple of weeks after the payment is deemed late. The longer you allow a debt to go uncollected, the less chance there will be of collecting.

The Second Notice:

If after a week, you have not received a response from the first notice, send another and word it a bit more urgently while stating that you value their business and are concerned about not being able to contact them and hope everything is alright with them.

The Third Notice:

If still no response, in the third week, send a printed letter via the mail (yes, the postal service still exists in some places) outlining the terms of your original agreement with the client and that not having their payment is affecting your ability to run your own business and to please contact you right away to arrange a payment plan. Some people tend to take a letter on paper more seriously than an email.

Final Notice:

In this fourth and final attempt, you should state clearly that this is their final notice before you refer their outstanding balance to collections. Be sure to include the terms of your original agreement once again in this letter and ask them to contact you right away to prevent their account from going into collections.

Referring An Outstanding Balance To A Collection Agency:

There are collection agencies that specialize in servicing the needs of small business clients. These agencies actually purchase the outstanding debt from you, not at face value of course, but sometimes for as little as $20 below face value of the debt and then they own that debt (meaning legally that the client no longer owes you, they owe the collection agency who purchased your claim against the client). They make their money by going after your deadbeat clients and keeping whatever they collect.

Let the professional debt collectors do what they do best while you do what you do best, which is running your respective businesses in which you specialize. After all, that is why YOUR clients came to YOU in the first place isn’t it? NOW GET BACK TO WORK!

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