Disaster # 6 -The collection letter that backfires
Part 6 of a series: Disastrous Debt Interactions
This letter makes no accusations or threats, yet drove over ten times the revenue vs. prior efforts.
“Your account has been referred to collections,” begins one.
“We’ve tried to be reasonable, but you ignored numerous payment requests,” starts another.
Still another opens with a threat: “Unless we receive payment in 5 days, we will begin collections proceedings, including potential litigation.”
Most of us have received letters like this, but the truth is that they’re rarely successful in promoting a payment; they fail to do so 97% of the time.
In fact, they’re often counterproductive – angering consumers, creating further justification in their minds for not paying, and potentially leading to costly regulatory complaints.
Even when recipients do pay, they often take pains to use the original invoice payment stub instead of the one on the collections letter; so inured are they to complying with a collections process they find offensive.
The time has come to reform the ubiquitous collection letter.
Collectors need to rethink the language they use with consumers, just as police are rethinking the way they interact with the community. In fact, the comparison between debt enforcement and law enforcement is an apt one. Both are necessary, but fraught with potential to alienate citizenry, a history of past abuses and disproportionate impact on poor and minority communities.
Of course, debt collectors do not use lethal force (with the exception of those employed by organized crime!) so my comparison can only go so far. But let me go a little further for a moment…
I do not propose to “defund” the collections letter, merely to improve it.
For 18 years my organization has been researching, developing, and proving collections letters that do work. Here are the principles we use:
Clearly display the debt’s origin in a box on the letter. For example: “Dr. Johnson office visit. October 15, 2019. Balance due: $115.79.” It’s amazing how many collection letters delay payment by hiding the reason for the debt.
Open with a disarming comment; not an accusation. Instead of: “You’re 60 days delinquent,” begin with something like: “It’s probably a simple oversight…”
Offer credit card and installment payments. If a customer lacks sufficient bank balance, they might well have a valid credit card, and you can open a merchant account online in minutes to accept cards. For large balances, offer to charge in monthly installments, but be sure you do it according to your merchant account rules.
Put the request in context with your value proposition. Delinquent debtors often overlook all that you do to satisfy them, so remind them. For example: “Unlike other firms, we provide same day delivery at no extra charge, because we count on prompt payment…”
Remind them that times are tough for you as well. Especially in light of COVID-19, remind customers that it’s harder for you to get help, costs have increased, and your whole team is making sacrifices to continue serving customers.
Make sure your collection letter is “fault tolerant.” No data is ever 100% correct. It’s possible you mis-applied a payment to the wrong account, for example. So in addition to the disarming opening in point 1, hedge your bets at the close with “Sorry if this letter and your payment crossed in the mail” and “If you believe our accounts are in error, call me.” (That’s right, I said “Call me. All effective letters should be signed by a real person with a real phone number the customer can call.)
For persistent bad debt, offer to settle. The vast majority of customers feel guilty about unresolved debts, but just don’t have the wherewithal to pay them. Offering a settlement for less than the full amount owed can open the floodgates among seriously delinquent customers who’ve failed to respond to several earlier attempts.
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