Businesses are established to generate profits, and sales constitute the primary source of profit. In the case of credit sales, it is crucial to collect payments from credit customers.
Learn How To Write a Dunning Letter Effective.
Why is the Dunning Letter Used?
While most customers settle their bills promptly, others may require reminders. Collecting overdue accounts might be an unpleasant task, but it is essential for organizations that extend credit. Failing to employ effective collection methods can lead to difficulties in meeting financial obligations.
Moreover, customers who continue to owe money on their accounts might turn to other businesses for their needs, resulting in a loss of potential sales.
Therefore, every dunning letter is crafted to secure payment from the customer while preserving the customer’s goodwill.
What is the Dunning Letter?
A collection or dunning letter is a written communication designed to expedite the recovery of outstanding accounts. Thill and Bovee (1999) provide the following definition: “A series of letters sent to the customer at predefined intervals, reflecting the increasing seriousness of overdue situations, is known as a collection or dunning letter.”
Essentially, collection or dunning letters are letters used to collect payments on past-due accounts.
Wells (1985) offers a more concise definition: “A collection letter is a letter that attempts to secure payment for an overdue debt.”
Therefore, a dunning letter consists of a series of letters that aim to collect past-due accounts from customers while gradually emphasizing the seriousness of the credit situation.
9 Features of a Dunning Letter
Dunning letters are persuasive in nature, with the goal of convincing account holders to settle their outstanding balances.
It is crucial to approach this process with care and courtesy to retain customers even after recovering past dues. The following features distinguish dunning letters from other types of communication:
Progressive Efforts
Dunning letters consist of a series of progressively stronger messages. This sequence of letters is referred to as the “collection series.”
Reminder Letter
The initial letter in the series serves as a gentle reminder.
Persuasive Letters
Subsequent letters in the series are designed to persuade the customer to make payments.
Urgency or Threat
The final letter in the series typically conveys a sense of urgency or contains a more explicit threat.
Multiple Letters
Except for the final stage, more than one collection letter may be sent in each stage of the process.
Retaining Goodwill
Every collection letter is crafted to secure payment from the customer while preserving the customer’s goodwill.
Persuasive Nature
Dunning letters are a form of persuasive communication.
Special Business Demand
Dunning letters serve as a specialized form of business demand.
Short and Fast
Collection efforts are usually conducted with brevity and speed.
By understanding these features and following effective practices, businesses can navigate the process of collecting overdue accounts while maintaining positive customer relationships.
Parts of a Dunning Letter
A dunning letter consists of a series of letters. The number of phases or stages involved is not settled, with various sources proposing different stages.
For instance, Thill and Bovee (1999) point to five stages: Notification, Reminder, Inquiry, Urgent Notice, and Ultimatum.
Burnett and Dollar (1997) mention four stages: Reminder, Stronger Reminder, Discussion, and Urgency.
Lesikar and Pettit (2002) outline three stages: Early, Middle, and Final. Amid this diversity, we can suggest four stages for a collection series:
Reminder Letter
This letter serves as a friendly reminder, gently notifying customers about their overdue balances.
Stronger Reminder Letter
In this letter, a firmer tone is used to remind customers of their outstanding dues.
Discussion Letter
The purpose of this letter is to initiate a conversation with customers, allowing them to discuss any difficulties they may be facing and explore alternative solutions for debt repayment.
Urgency Letter
This final letter provides customers with a last opportunity to settle their dues and issues an ultimatum, using urgency and fear as motivating factors.
10 Tips for Writing a Dunning Letter
Writing a dunning letter involves collecting past-due accounts while also maintaining customer loyalty to the firm. To achieve these goals, the following general writing guidelines should be observed:
Maintain Customer Goodwill
Avoid belittling customers or using derogatory language.
Positive Appeal
Convince customers with a positive appeal that highlights the benefits of settling their debts.
Avoid False Implications
Do not falsely imply that a lawsuit has been filed when it hasn’t.
Avoid Abusive or Threatening Language
Refrain from using abusive or threatening language.
Avoid Defamatory Language
Do not use defamatory language, such as calling the person a “deadbeat” or a “crook.”
Honest Representation
Do not misrepresent the legal status of the debt.
Progressively Harder Language
Use progressively stronger language in the various stages of the collection letter.
Polite and Businesslike Tone
Maintain a polite and businesslike tone while pointing out legally available actions.
Tailor Frequency and Timing
The number of letters and the time intervals between them should depend on factors such as the customer’s past payment record, the type of business, the level of risk, current business conditions, and standard practices in the industry.
Use Envelopes
Send the message in an envelope for confidentiality; avoid using postcards.
By adhering to these guidelines, businesses can navigate the process of collecting overdue accounts effectively while also preserving customer relationships and goodwill.
Stage of Writing a Dunning Letter
A. Reminder Letter
A reminder letter is the initial stage of early collection efforts. As long as you believe that your credit customers intend to pay, you should handle them truthfully. The tone of the letter is reassuring, conveying the company’s assumption that some minor problems have delayed payment.
The company still believes that the customer has every intention of paying what is due and needs only to be reminded. Thus, the tone is not too serious. You may follow the understated guidelines:
1. You can send a duplicate of the original bill with or without a few reminder words to the bill or a preprinted stamp or a sticker indicating that payment has not yet been received.
| Please | Probably you have forgotten |
| May we remind you | Just a friendly reminder |
If these reminders do not bring in payment, you will need to write a first collection letter. In writing the reminder letter, maintain the following:
- Bring directly with a reminder of the past due bill.
- It should be short and courteous.
- Include some goodwill materials showing confidence that the debtor will pay.
- End with a friendly, forward-looking goodwill comment.
| Specimen: Reminder Letter |
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| Smith & Sons Services Inc. 12, Rua da Praia Lisbon – 1600 Portugal April 5, 2005 Mr. Alexander William Harrison Proprietor Harrison’s Emporium Charing Cross Road London WC2H 0HA United Kingdom Dear Mr. Harrison, This is a gentle reminder that your account with us currently reflects an outstanding balance of £2,500, which is now two months overdue. We greatly value your patronage and the trust you have placed in our services. It has been a pleasure serving you, and we look forward to continuing our partnership in the years to come. We kindly request your prompt attention to this matter and appreciate your timely payment. Thank you in advance for your cooperation. Sincerely, Sir Richard James Worthington Manager (Marketing) Enclosure: A copy of the invoice. |
B. Stronger Reminder Letter
When a reminder fails, one should use persuasive letters. This time, you will need to write stronger letters to convince the debtors that they should pay. Here, your procedure is to select a basic appeal and then to present the appeal convincingly. So, observe the following:
- Use persuasive techniques.
- Don’t assume that your customer plans to ignore the debt, so avoid accusations in your stronger reminder letter.
- Personalize the appeal. You are to ask your customer to work out an individualized solution.
- The message should contain a firmer tone, and attention is directed solely toward receiving the amount owed.
- State the debt and directly request payment.
- Make it easy to respond.
- Avoid any suggestion that the customer might be dissatisfied with the purchase.
- Emphasize the reader’s obligation to communicate about the problem.
| Specimen: Stronger Reminder Letter (2nd stage) |
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| Smith & Sons Services Inc. 15, Avenida da Praia Lisbon – 1600 Portugal April 25, 2005 Mr. Alexander William Harrison Proprietor Harrison’s Emporium Charing Cross Road London WC2H 0HA United Kingdom Dear Mr. Harrison, We find ourselves in a situation akin to writing to a dear friend about a somewhat uncomfortable matter. In this case, you are that friend, and the matter in question is your overdue account. You may recall that some time ago, you acquired goods from us, and we extended the courtesy of a 30-day credit term based on your promise to settle the account within that timeframe. We were pleased to accommodate your request, and it has been our pleasure serving you. However, it is now imperative that we address the fact that your account is currently 60 days overdue. We understand that unforeseen circumstances may have arisen, but it is only fair that both parties fulfill their respective obligations in our mutual agreement. We kindly request that you remit the outstanding amount of £2,500 at your earliest convenience. Your prompt attention to this matter is crucial to maintaining your status as a valued prompt-pay customer. We value your continued business and hope to continue serving your needs efficiently. Please consider this letter as a strong reminder of the importance of settling your account without further delay. Thank you for your immediate attention to this matter. Sincerely, Sir Richard James Worthington Manager (Marketing) |
C. Discussion Letter
This stage of writing the collection letter assumes that something has happened to prevent the customer from paying. The objective of this stage is either to receive payment or to get an explanation from the customer.
So, your letter should have an insistent tone in a courteous manner. By increasing pressure on the customer, you expect a positive response.
Therefore, convey your desire to collect the overdue payment immediately and your willingness to get serious but avoid any overt threats. The following instructions will help you write an effective discussion letter:
1. Analyze and Set the Strategy
The readers wish to act contrary to your wishes. You want them to pay, but they have shown by ignoring your reminders that, at best, they are not eager to pay. Thus, they are not likely to receive your persuasive letter favorably for debt collection.
More than likely, they do not want to hear from you at all. In such situations, you must gain the reader’s attention at the beginning. If you do not, the odds of getting your message across are slim.
So, you should use a strategy to persuade debtors to pay. Here’s how:
- Begin by looking at the situation from the reader’s perspective.
- Select an appeal from these categories:
- Pride: Appeals to the reader’s concern for self and what others think.
- Ethics: Appeals to ‘doing the right thing.
- Self-interest: Emphasizes why it is best for the reader to pay.
- Fear: Stresses the negative consequences that could happen by not paying.
- Develop the appeal. Think out the reasoning that will persuade the reader to pay, and then present this reasoning in your letter with whatever strength is appropriate for the stage of your collection effort. So, follow this plan:
- Begin with attention-getting words that set up the appeal.
- Present the appeal using a you-viewpoint adaptation and persuasive language.
- Request payment. You may end here.
- Consider ending with words recalling the appeal.
2. Gain Attention in the Opening
You will need to find some interesting words that help set up your basic appeal. Examples:
- “When they ask about you, what should we tell them?”
- “How would you write to a good friend about an embarrassing subject?”
3. Persuasively Present the Appeal. How? Observe the Following:
- Follow a persuasive strategy.
- Adapt to the reader’s point of view.
- Highlight the consequences of not paying the debt within the stipulated time.
- Your words should carry just the right degree of force for the particular stage of collection you are in.
- Effective persuasion does not insult, talk down, lecture, or show anger. Instead, it is caring and friendly.
- Maintain cordial relations as you hope to collect.
- Demonstrate genuine willingness to help.
- Include in the body of the letter facts, figures, or reasons why the customer will benefit from complying with your request.
4. Close with a Request for Payment
You should ask directly, in words that do not merely hint at payment but form a clear question. It is better to link the payment with a benefit to be gained by the reader.
You may write as follows:
- “Will you please write a check for Tk.——– today and mail it to us right away?”
- “We would appreciate it if you could write and send us a check for Tk………..”
| Specimen : Discussion letter (3rd stage) |
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| Smith & Sons Services Inc. 30, Rua do Comércio Lisbon – 1700 Portugal May 10, 2005 Mr. Alexander William Harrison Proprietor Harrison’s Emporium Charing Cross Road London WC2H 0HA United Kingdom Dear Mr. Harrison, We hope this letter finds you well. We find ourselves in an uncomfortable situation that we wish to address as if writing to a dear friend about a sensitive matter. Regrettably, your previous responses to our attempts to collect the outstanding balance of £2,500 have been non-existent. This leaves us with limited options, and we must consider alternative means of resolution. Our aim is to find a solution that is in the best interest of both parties. Legal action is a course of action that neither of us wishes to pursue, as it can be burdensome and unpleasant for all parties involved. We genuinely hope to avoid such measures, especially for your sake. To prevent any further escalation, we kindly request your immediate attention to this matter. We urge you to send a cheque for the outstanding amount of £2,500 within the next 10 days from the date of this letter. If you are facing any difficulties, we encourage you to communicate with us. If you prefer to make payments in installments, please send the initial installment now. If you require additional time for payment, kindly provide a written request specifying the extended timeline, along with a firm commitment to settle the balance by that future date. It is essential to emphasize that your response or payment must reach us within the stipulated timeframe to avoid unnecessary expenses and complications, which we both wish to avoid. We sincerely hope to find a mutually agreeable solution to this matter and encourage your prompt response. Thank you for your understanding and cooperation in this regard. Sincerely, Sir Richard James Worthington Manager (Marketing) Smith & Sons Services Inc. |
D. Urgency Letter
Some debtors will ignore your most persuasive efforts. Therefore, your collection letters will not bring in all the money.
You cannot, in this circumstance, continue your collection efforts indefinitely. You will need to take last-resort action with these debtors. You will use your final letter in the collection series to inform them of this intent.
Options Available
- Report the account to some credit inter change group.
- Sell the account to the collection agency empowered with full authority to take legal steps, if necessary.
- Take the delinquent to the court.
You will need to decide on the action appropriate to your case. Consider customs in the field, nature of the account and your organization’s image while selecting one of the above-mentioned options.
How Will You Write?
- Begin the letter with the threat of action.
- Present justification for this action.
- Explain the effects of the action on the debtor. Use your view considering the following:
- Place yourself in the reader’s position.
- Imagine what this action will harm you.
- Credit buying stop.
- Court costs
- Loss of prestige
- Personal embarrassment.
- Select the most appropriate one in this case
- Decide how to present them convincingly. It should be presented firmly, clearly but without anger.
- Offer a last chance to pay in the close by setting a deadline and urging that it be met.
- End the letter by associating paying with avoiding the effects of the action.
| Specimen: Urgency Letter (Last stage) |
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| Smith & Sons Services Inc. 45, Rua da Justiça Lisbon – 1800 Portugal June 10, 2005 Mr. Alexander William Harrison Proprietor Harrison’s Emporium Charing Cross Road London WC2H 0HA United Kingdom Dear Sir, Subject: Urgent Legal Action – Outstanding Account of £2,500 We write to you today with the utmost urgency and regret regarding your overdue credit account, amounting to £2,500, which was due for settlement on March 24, 2004. Despite our repeated attempts to resolve this matter amicably, we have received no response from you, leaving us with no recourse but to initiate legal proceedings through our attorney. Legal action carries significant consequences, both financially and personally. If pursued, it would entail court-mandated repayment of the outstanding debt in addition to court costs. Such an ordeal can be not only expensive but also potentially embarrassing. Furthermore, it may have a lasting impact on your credit record. We want to emphasize that we have been patient in handling your account, providing ample time for settlement. While we highly value your business, we cannot allow credit accounts to remain unresolved indefinitely. We have extended the deadline to take legal action until June 20th to afford you one last opportunity to rectify this matter. We implore you to act promptly by remitting a cheque in the amount of £2,500 by return post to avoid the expenses and repercussions of legal action. We sincerely hope you will seize this final chance to settle your account and prevent the undesirable consequences that will follow should we proceed with legal action after July 20, 2005. Please consider this letter as a plea to resolve this matter amicably and promptly. Sincerely, Sir Richard James Worthington Manager (Marketing) Smith & Sons Services Inc. |