Accounts Correspondence

An account correspondence refers to bookkeeping records that stem from the double-entry system of economic operations. The need for such a correspondence arises to ensure uniform reflection of all the account operations. By following all the instructions for using the appropriate plan for the compilation of bookkeeping records, a standardized accounts correspondence is established. There are many ways to record correspondence of accounts such as documents, account registers or other bearers of accounting information. When a correspondence of accounts is initially entered in primary documents, it is termed as an entry. Accounts correspondence can have many forms like an invoice, statement of accounts, delivery challans and many other financial transactions. To understand the nitty-gritty of correspondence of accounts, one will have to define a collection letter, which we will read in detail in this article.

What is Collection Letter 

For managing accounts receivable, bank personnel needs to communicate with their customers. A collection letter plays an important role in this communication strategy. To define a collection letter in simple terms, it is a written notification sent to a bank customer stating details of his past due payments. The first collection letter to the client is sent as soon as an invoice has gone past the due date. The tone of the collection letter changes as invoice keeps going unpaid. A payment collection letter that was sent for an invoice gone unpaid for 15 days would have a different choice of words than a letter that is sent after the payment is 90 days overdue. Collection letters become more persistent with time.

The Importance of a Collection Letter

A collection letter is like a nudge to the customer to send payment or to call them and discuss the matter. A collection letter, also known as a dunning letter, must be polite yet firm and have clear instructions on how the customer can make the overdue payments. A collection letter is an important component of any business. It is an effective way to influence a debtor to pay his or her dues and also maintain goodwill with the customer. The credit facilities that exist in the business world have given rise to collection letters and their importance cannot be overlooked. 

Credit is defined as purchasing and receiving goods and products without the need for immediate payment. The credit facilities to the buyer have helped businesses to expand hence the tradition of credit facilities has flourished. However, at the time of settlement, if the buyer does not respond, the seller needs to take the help of dunning letters. As long as credit facilities remain in the business system, collection letters would hold importance. A credit collection letter must be discreet and should not be threatening or demanding.

General Characteristics of a Collection Note 

A collection letter must include:

• the name of the original creditor and his company

• the debt collecting agency that represents the lender (if there is one)

• the full debt amount

• additional costs and fees (if any)

If the collection note is a final one (demand) or is a letter before action, it would also have the last deadline for payment. After this deadline payment is crossed, a case will be filed in court and the small claims court procedures will proceed.

A payment collection letter or debt recovery letter is usually dispatched by either the creditor or the DRA (Debt Recovery Agency). A collection note can also be sent by a debt buyer who buys default profiles from the lender who then becomes the official owner of these delinquent accounts. A debt recovery solicitor can also send a debt collection letter. 

A Collection Letter Should Be:

1. Firm but not demanding

2. Persuasive but not forceful

3. Tactful but not sarcastic

4. You-oriented

5. Polite and considerate

6. Should show concern for customer’s best interests

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Collection Letter Format 

It must be considered that as an initial communication, one does not send a collection letter to contact the customer. In the preliminary phase, one would either send an email or call up the customer to let them know that an invoice due date is approaching. As soon as the payment goes overdue, the first collection letter must be sent in the following format:

• Days past due

• The amount that is due

• Mention previous attempts to collect the amount

• A summary of the customer’s account

• Instructions on what customer needs to do next

• The actual due date for payment. One must not use vague terms like “In the next 10 days” but mention the exact date when the amount was due

• Your contact details