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How to Write a Debt Collection Letter

How to Write a Debt Collection Letter

This guide includes information about how to write a debt collection letter and pursue outstanding invoices from nonpaying clients.

  • A debt collection letter reminds a debtor that they owe you money.
  • You can use a debt collection letter to set up a repayment plan or warn of impending legal proceedings.
  • A debt collection letter should include the total debt owed, the initial due date, and any necessary warnings of impending legal action.
  • This article is for business owners and freelancers looking to formally pursue debts from nonpaying clients.– It is one thing if a customer pays the most recent invoice a week or two after the due date. Another is if you haven’t paid for months, especially if the bill is high. If your typical communication channels simply aren’t up to the task of recovering your client’s unpaid debt, more formal steps may need to be taken.

Debt collection letters should be the first step in your action plan. Once you’ve sent enough letters, you can send the customer’s debt for collection, although you may want to exhaust all other options before doing so. Find out more about the debt collection letters and debt collection process below.

What is a debt collection letter?

A collection letter is a formal debt reminder that you send (or hire a collection agency to send) to a non-paying customer. You can send a debt collection letter to a B2B customer (another business) or to an individual consumer.

The first debt collection letters you send to a debtor can be relatively friendly and understanding. However, as you send out additional debt collection letters, it may be necessary to step up what you write to include notices of impending lawsuits.

What is the purpose of a debt collection letter?

A debt collection letter can serve one, some, or all of the following purposes:

  • Tell debtors that they owe you money. If this is your goal, your letter should simply remind the client of the existence of his debt and the initial due date. At best, it should gently suggest that legal action may occur in the future, because the debtor may not have any intention of hindering you. They may have simply forgotten about their debt or are currently short of cash, but still intend to pay off.
  • Establishment of a payment process. If your debtor is found to have cash flow problems, you can offer a payment plan in your collection letter. This way, the debtor doesn’t have to fight to get $ 10,000 all at once. Instead, you can arrange a 10-month payment plan of $ 1,000 monthly installments. That said, make sure any payment plan you accept is as good for you as it is for the payer.
  • Start of the judicial procedure. If your client’s debt is not paid off long enough, legal proceedings may need to be initiated to recover it. In such a case, a debt collection letter should be sent outlining the legal actions the debtor should expect. If the debtor does not respond promptly with full payment of his debt, you can formally initiate the collection process, either by doing it yourself or by hiring a collection agency.

What should be included in a debt collection letter?

A debt collection letter should include the following information:

  • The amount the debtor owes you
  • The initial due date of the payment
  • A new due date for the payment, whether ASAP or longer
  • Instructions on how to pay the debt
  • In your first debt collection letter, phrasing that advises the debtor to contact you if the debt has indeed been paid and you are in error
  • In the early stages of collection, a friendly but firm reminder that payment is due ASAP
  • In the early stages of collection, a note that you would like to retain the client but require payment to do so
  • In the late stages of collection, a firm (but not quite unfriendly) warning of impending legal action, such as sending the debtor to collections
  • In the late stages of collection, a note that the debtor has the right to dispute their debt via debt validation letter sent within a given timeframe of receiving your debt collection letter

Sample debt collection letter

John Creditor Doe
John Creditor Doe’s address
April 1, 2021

RE: Overdue payment

Dear John Creditor Doe,

[If this is the first or second debt collection letter:] This letter is a reminder [or “another reminder” for a second letter] that a(n) $[amount] balance on your account due on [date] remains unpaid. Please send us your payment [ASAP or within X days of the date at the top of this letter] [insert instructions on how to pay here]. Although we look forward to continuing our business relationship with you, we cannot do so if your balance remains unpaid.

If you have already made this payment, please contact us at [email address or phone number] to rectify this matter. We apologize for any inconvenience this may cause.

[If this is the last collection letter before initiating legal proceedings:] This letter is your final reminder that a(n) $[amount] balance on your account due on [date] remains unpaid. We regret to inform you that if you do not send us your payment immediately by [insert instructions on how to pay here], we will send your balance to collections. A debt in collections can seriously affect your credit score, so we advise you to pay immediately.

If you would like to dispute this debt, you can legally do so with a letter of debt validation submitted within [timeframe] of the date listed at the top of this letter. If you do not file a letter of validation within this timeframe, it will be assumed that you agree for your debt to be sent to collections. 


[Your name] [Your position] [Your company name]

When to hire a debt collection agency

After you submit a final debt collection letter warning of a legal action, you may want to hire a debt collection agency to recover the debt. Both small businesses and freelancers with non-paying clients can hire these agencies. Your debt collection experts will manage the collection process on your behalf, allowing you to focus on your regular work.

That said, collection agencies should always be your last resort as they can be quite expensive. Typically, when you submit a debt for collection, your agency will retain a substantial portion of the debt as payment, so agencies are often not suited to collecting small debts. Plus, sending a customer’s debt to cash is a surefire way to break ties with that customer, so make sure you’re willing to burn that bridge before taking any action.

If you decide to hire a debt collection agency, take a look at our debt collection agency reviews. Our reviews highlight the best small business collection agencies, B2B collections, B2C collections, and low-cost services so you can recover your debt with as little hassle as possible.

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