Why is our collection letter not effective?

I was attending the just concluded Visayas Area Business Conference (VABC) hosted by the Mandaue Chamber of Commerce last week, when I bumped to an old friend who is now head of their company’s Credit and Collection Unit. He admitted that right now, their collection performance is not so good. There he asked me a frequently asked question:  “Why is our collection letter not effective?” or to that effect. I promised him that I would answer his question today, so here goes.

In the Philippines, collection letters vary, but in general, there are only two kinds of collection letters, the reminder letters and demand letters. Although, some have several letters that are called demand letter 1, demand letter 2 and demand letter 3. Up to now, I cannot understand and cannot rationalize what’s the difference and who started this practice. 

Anyway, reminder letters are usually a subtle letter and the least insistent of the collection letters. A duplicate invoice, an overdue reminder or a short note serves this purpose. There is some doubt however, as to when the reminder letter should be sent. Some businessmen are afraid of alienating their customers by calling their attention to just recently past-due amounts. However, one must realize that slow reaction to any overdue accounts receivable cost money and the customer should be expected to realize this fact and to either pay his account on time; or pay a charge for the extra time he takes to pay his bill. The problem is that the customer would certainly object to paying additional charges for merchandise after the terms have been set. It is now all depends on the relationship and documents signed. 

When initial reminder letter do not succeed in obtaining payment, the collection effort must go into the second letter – the demand letter. Sending of demand letter must be automatic and systematic.

So lets go back to the abovementioned question: why most of the collection letters fail? While I cannot provide a simple answer to this question, I will try to point out some of the principal shortcoming of collection letters as they are used today. Richard H. Morris, in his “Credit and Collection Letters; New Techniques to Make Them Work”, analyzed over 500,000 collection letters to find out why they did not produce payment. Here are some of the results:

At least 50% of the letters were too long. Some of the causes for lengthy letters were repetition, stereotyped phraseology, and inclusion of unnecessary details, talking about things, which were obvious or not pertinent.

At least 28% of the letters were vague and/or outright confusing.  In many instances, the reader could not understand what the writer wanted to say.

At least 25% of the letters were too short. As a result, they either did not furnish enough information, or were abrupt and offensive.

At least 22% of the letters were tactless, demanding, accusing and/ or insulting. No person who receives such letter is in a frame of mind to comply with its request. The purpose of the letter is to obtain payment, not get into an argument. If that is so, why send one, which irks the readers?

At least 6% of the letters did not make sense: They should never have been written, for they said nothing about the objective of the letter – which is to collect the overdue amount.

 So now, review your own collection letters and find out where it fails.

For more credit & collection (C&C) questions, comments and rejoinders you want to share or inquire, you can reach me at 0917-7220521 or at [email protected]