Dunning Notices; Past Due Notices; Friendly Reminders

The most common types of collection efforts used by the credit department are calls and written correspondence.  In a busy credit and collection department, a letter or fax or email is the method of choice for contacting customers, particularly with smaller past-due balances. A series of letters can be created to ask the customer to issue payment to clear the past due balance.  Each letter in the series typically is slightly more strongly worded than the previous one.  Dunning Letters or Notices, (also called Collection Letters) can be a useful tool in collecting past due balance.  Many creditors also send monthly statements to all customers with outstanding A/R balances, whether the invoices are past due or not.   These statements typically list all open invoices, as well as stating the current balance as well as the past due balances by aging “bucket.”

A dunning letter has two main objectives:

• Get the past due balance paid quickly, and
• Retain customer goodwill

For the letters to be successful consider the following:

Style:

• Keep the letter to one page
• Use short sentences simple words
• Customize the letter by sending it to a person by name, not to the Accounts Payable Department

Opening and Closing:

• Use specifics - get the name of the person responsible for payment (Mr./Ms./Mrs. (last name)
• Sign the letter personally
• Use a non-threatening tone

Body:

• Date(s) of Invoice(s)
• Total amount due
• Request for Full Payment immediately or by a certain date
• Reference their purchase order number
• Reference your invoice number(s)
• Request payment by courier or EFT
• Convey urgency

Tone:

• Be firm and direct 
• Make your message urgent, and
• Unapologetic

Most credit professionals do not limit themselves to one method of collection.  Instead, they use collection calls, customer visits, collection letters and dunning notices in combination to speed up debt collections.  If a series of notices are used, the notices are normally progressively more strident in demanding the customer pay or resolve the past due balance. 

One final comment:  Avoid using form letters that are not personalized.  Sending a notice about a past due balance to the attention of the “Accounts Payable Manager”  is not likely to be as effective as addressing that notice to someone using their full name and title.  Personalized correspondence may get read while messages that are essentially addressed "To Whom It May Concern" often are not and if your message is not read, it cannot be acted upon by the accounts payable staff.

Edited by Michael C. Dennis.  Mr. Dennis is the author of several books relating to credit management.  He can be reached by email at mcdennis13@yahoo.com