Accounts Receivable Software

Collection Letter Templates & Strategies to Get Paid

AR collectionsPayment reminders

Côme Chevallier

Oct 23, 2024

Summary

What is a Collection Letter?How to Create a Collection StrategyWhat to include in a Collection Letter?Our collection letter templatesHow to Prevent Late Payments Early On?Key Takeaways

Dealing with overdue invoices is a challenge that every business faces at some point. If your payment reminder emails and phone calls go unanswered, one of the most effective ways to address late payments is through collection letters—formal, structured communications that escalate the urgency of payment without damaging customer relationships. Whether you're new to the process or looking to refine your approach, having a well-defined collection strategy is crucial. Keep reading to discover:

Want to prevent late payments escalating to the point of sending collection letters? Click the banner below to connect with our cash collection experts and craft a personalized collection strategy for your business.

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What is a Collection Letter?

A collection letter is a formal written notice sent to a customer or client who has an overdue or outstanding invoice. Its purpose is to remind the debtor of the due payment, establish a sense of urgency, and provide a clear request for the balance to be settled.

Unlike casual reminders, collection notices or letters typically signal a more serious stage in the accounts receivable process, especially when prior email reminders or phone calls have gone unanswered.

Collection letters often escalate in tone over time—from polite initial requests to firmer demands as the delinquency period increases.

They may also outline potential consequences of non-payment, such as late fees, service disruptions, or legal action. Businesses typically send these letters after exhausting softer communication approaches, but before taking formal legal action.

A well-structured collection letter should include details such as the amount due, invoice number, payment terms, deadline for payment, and instructions on how to resolve the matter.


How to Create a Collection Strategy

A successful cash collection strategy is about balancing assertiveness with maintaining positive customer relationships.

Emilie Hart and the team at WorkMotion epitomise this approach. Emilie, who leads the Finance Operations Team, notes: “Our main goal is to create a positive customer experience when it comes to collections by ensuring we’re sending and triggering reminders when it matters most”.

workmotion collection story

By tailoring the payment experience to individual customers, using segmentation and contextual knowledge from past interactions, Upflow ensures businesses like WorkMotion are able to engage the right person at the right time and place, specifically within the finance pillar of the customer journey.

It’s an approach we call Financial Relationship Management.

But what are the common steps in a cash collection strategy?

It generally begins with a friendly reminder a few days before the due date, followed by another on the due date. Once the invoice has passed its due date, the first set of email reminders should be polite and gentle, assuming the delay might be unintentional. The goal is to prompt payment without damaging rapport.

If the first reminder after the due date fails to generate a response, the second and third communications should gradually become more assertive. By the third outreach, it may be time to escalate the situation by introducing phone calls, which allow for more direct interaction and quicker resolution. Phone calls also create a more personal connection, showing that you’re serious about receiving payment but still value the relationship.

Need inspiration for your payment reminder emails? Click on the banner to download free collection email samples as PDFs.

cta email templates

If emails and phone calls do not yield results, the next step is to send collection letters. These formal collection notices indicate urgency, making it clear that further delays may result in more serious actions.

The final escalation is often a legal notice, indicating that the debt will be pursued through legal channels if it remains unpaid. This step should only be taken as a last resort, after all reasonable attempts to collect the debt have been exhausted.


What to include in a Collection Letter?

A well-crafted collection letter helps ensure clarity and urgency while maintaining professionalism. Here’s what you should include:

  1. Personal Information:

    Address the letter directly to the recipient, including their full name, company name, and any details about the services or products you’ve provided. This personal touch not only ensures that the letter reaches the right person but also reminds them of your relationship and the value your business has delivered.

  2. Your Contact Information:

    Provide multiple ways for the recipient to contact you. Include your business address, email, and phone number, making it easy for them to resolve the payment issue or get in touch with any questions.

  3. Attach All Overdue Invoices:

    Always include copies of all overdue invoices. This ensures the client has a clear view of each outstanding balance, including invoice numbers, amounts due, and due dates. If there are multiple invoices, create a concise list in the body of the letter to ensure transparency and avoid confusion.

  4. Invoice Details and Due Date:

    Reference the original invoice numbers, the amount owed, and the number of days past due. Emphasize this information to highlight the urgency of the situation and remind them of the missed deadlines.

  5. Updated Invoice with Late Fees (If Applicable):

    If your business charges late fees, include an updated invoice reflecting the additional charges. Make sure to clarify that the late fee will continue to accumulate if the payment is further delayed, depending on your terms and conditions.

  6. Payment Methods:

    Provide clear and convenient payment options. List all acceptable payment methods such as credit card, bank transfer, or online payment links. The easier it is for the client to pay, the quicker you’ll receive payment. Providing a direct payment link can significantly speed up the process.

  7. Offer a Payment Plan (Optional):

    If applicable, offer the option of a payment plan. This is particularly helpful if the client is struggling financially. Outline potential terms for weekly or monthly payments, making it easier for them to manage the overdue balance.

  8. Consequences of Non-Payment:

    Detail the next steps if payment isn’t made within a specified time frame. This could include suspending services, transferring the debt to a receivable management services company, or taking legal action. Mention any contractual terms that support these actions, such as late fees or penalties. Be clear but professional when outlining these potential consequences.

By including all these elements, your collection letter remains clear, actionable, and professional, maximizing the chances of payment without harming your business relationship.


Our collection letter templates

A well-timed series of collection letters can help recover debts without damaging client relationships. Below are four collection letter template samples that escalate from a polite reminder to a formal legal notice, helping guide the communication process and ensure timely payment.

#1 Collection Letter: Formal Reminder of Due Payment

This first letter is a polite reminder following previous communication (emails or phone calls) about overdue payments. It provides a clear summary of the outstanding invoices, includes payment details, and gently urges the client to take immediate action to avoid further escalation.

#1 Collection Letter: Formal Reminder of Due Payment

#2 Collection Letter: Warning of Service Restriction

This collection notice escalates the situation by warning the client that if payment is not received within a specified timeframe, their access to services or products will be restricted. The tone is more assertive, and it signals the seriousness of the situation, encouraging the client to pay promptly to avoid service disruption.

#2 collection letter warning of service restriction

#3 Collection Letter: Service Restricted and Legal Warning

In this letter, the service has been restricted due to non-payment, and the client is informed of this. The collection notice is more of a warning for a legal notice as it also includes a firm warning about potential legal action if the payment is not made within the given timeframe. The tone remains professional but is more urgent and direct.

#3 Collection Letter: Service Restricted and Legal Warning

#4 Collection Letter: Legal Notice

This final letter is used when legal action has already been initiated due to continued non-payment. It informs the client of the legal steps taken and emphasizes the consequences, urging them to settle the debt to avoid further legal complications or costs.

#4 Collection Letter: Legal Notice


How to Prevent Late Payments Early On?

Preventing late payments starts well before invoices are overdue, with a combination of clear communication, strong client relationships, and efficient processes. By taking proactive steps and utilizing automation tools, businesses can minimize the risk of escalating to the point of sending collection letters. Here's how you can prevent late payments:

  1. Set Clear Payment Terms:

    Establishing clear payment terms upfront is key to avoiding late payments. Clearly define due dates, accepted payment methods, and any penalties for delays in the contract. This ensures both parties are on the same page from the beginning.

  2. Send Proactive Reminders:

    Instead of waiting until a payment is overdue, send timely, friendly reminders. Tools like Upflow allow you to automate these reminders, customizing the tone and frequency without needing to write the same email over and over. Upflow even reminds you when it’s time to send a reminder.

  3. Offer Flexible Payment Options:

    The easier it is for clients to pay, the faster they’ll settle their invoices. Offering multiple payment options—such as credit cards, bank transfers, or online payment portals—ensures you’re catering to their preferences and speeding up the process.

  4. Automate Payment Processes:

    Automating your collection and payment reminders with software like Upflow means fewer manual tasks and fewer errors. Upflow integrates seamlessly with your billing, accounting, and CRM systems, ensuring that you always have the latest information at your fingertips without having to manually update spreadsheets or chase after invoices.

  5. Segment Your Client Base for Better Focus:

    While automating reminders helps streamline processes, some clients need personalized attention. Upflow allows you to group clients based on their payment history, making it easier to focus on those who may need a phone call or more personalized outreach, while automating the rest.

  6. Incentivize Early Payments:

    Encourage prompt payments by offering small incentives, such as discounts for early payment. This gives clients extra motivation to pay before the due date, improving your cash flow.

  7. Utilize Real-Time Dashboards:

    Upflow also offers real-time dashboards that give you a clear view of your accounts receivable, enabling you to take swift action when needed. With all your data centralized, you can monitor payment statuses, track overdue accounts, and ensure you’re not caught off-guard by unpaid invoices.

  8. Provide a Dedicated Payment Portal:

    A dedicated payment portal for each customer, like the one offered by Upflow, makes it easy for your clients to settle their accounts, helping you get paid faster without constant back-and-forths.

  9. Focus on Strategic Actions:

    Automating repetitive tasks frees up your team’s time to focus on higher-value activities that can move your business forward. With less time spent chasing payments, your team can dedicate their efforts to nurturing key client relationships and driving growth.

By integrating Upflow into your accounts receivable process, you can streamline payment collection, reduce the risk of overdue invoices, and maintain stronger client relationships—all while ensuring that your business runs more efficiently.

Key Takeaways

  • Collection letters signal urgency: A collection letter is a formal reminder to clients of overdue payments and typically escalates from polite reminders to firmer demands, depending on the delinquency period.

  • Attach overdue invoices: Always include copies of all overdue invoices to provide clear details on the outstanding balance, invoice numbers, amounts, and due dates.

  • Gradual escalation in tone: Your collection strategy should escalate gradually, starting with email reminders, followed by phone calls, and eventually formal collection letters if needed.

  • Offer payment flexibility: Include multiple payment methods and, if necessary, offer a payment plan to facilitate easier settlement and maintain positive client relations.

  • Legal action as a last resort: If all collection efforts fail, the final step is sending a legal notice to pursue the debt through legal channels, but this should be used sparingly to preserve client relationships.

Financial Relationship Management

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