What is Collection Letter? Collection Letter is the message that is sent by business houses to the defaulting customers to collect overdue accounts. These letters are also termed as ‘Dunning Letters’. The causes of over-due accounts are as the individuals and companies they represent. A borrower, buying goods on credit, is expected to make payment within a specified period. Most of the buyers observe the payment schedule but, there are many who, on one or the other account, fail to do this. It may be that they mistakenly buy more than they should, or, it may be that some unforeseen difficulty makes timely payment a problem for them. There may be customers who are not satisfied with the merchandise, and so they withhold their payments. Still, there may be some who are irresponsible about paying their bills. In one or all of these situations, issuance of collection notices becomes indispensable.


Collection of a past-due account is not easy. It becomes more difficult if the customer is reluctant to cooperate with the bill collector. If the bill collector is impatient, impertinent and discourteous; he may lose the money as well as the customer. The main purpose of a collection message should be to collect the past-due account losing the customer and without affecting goodwill of a company. Keeping in view this objective, a good collection letter has to perform the following three-fold purpose:

  • Collecting outstanding dues
  • Retaining the customer
  • Building customer goodwill

Collecting outstanding dues: The chief objective of collection letters is to collect the outstanding dues from the customer who has defaulted. The whole exercise undertaken by the bill collector shall go vain if he approaches the customer and yet fails to collect the dues. It is important for the writer of a collection message that while drafting the letter, this chief objective of collecting the dues is kept in mind at every stage of the collection campaign. The most desirable way to achieve this end of a collection message is to try to make the defaulting customer himself realize his obligatory responsibility.
Retaining the customer: The immediate purpose of a collection letter is of course to collect the outstanding payment. But, this should not take place at the cost of the customer. In case money is recovered but the customer is lost or alienated, it shall be taken as a poor collection policy. To the best of his efforts, the sender of the collection message should remain polite and persuasive in his tone and technique so that the outstanding dues are collected and the customer is also retained.
Keeping customer goodwill; A good collection letter is the one that achieves its goal without doing any damage to the goodwill of the company. A business house, more than anything else, lives on its customer goodwill. A company that ceases to enjoy the approval and sanction of its customers, is bound to suffer. During the process of a collection campaign, critical moments are likely to occur. It is important that the sender of the collection messages keeps this aspect in his mind and does not adopt an attitude that affects the goodwill of the house.


To achieve the three-fold purpose of collection letter, the writer has to adopt the right attitude. The message that he sends must be fully effective so that it serves its purpose. The debtor may get touchy about how and when the creditor asks for payment. He may even react emotionally. Any emotional reaction on his part may, in turn, blur the chances of recovery.
Successful collections depend largely on the following factors:

  • Understanding of Human Nature
    •    Choice of Collection Appeals
    •    Knowledge of the Collection Policies and Laws


While sending a collection message, the creditor must remember that he is communicating with a human being, not with an account number. He should also keep in mind that different people have different mental filters. Each person is different from the other in his thinking, attitude and perceptions, Some persons may be more sensitive than the other. A feeling that the creditor is taking them as dishonest, is likely to make them react negatively. It is, therefore, very informative that the writer of a collection message has an understanding of human nature so that he acts in a way that takes in consideration human weaknesses and strengths. Integrity and honesty of  customers should not be unduly doubted. Instead, the benefit of doubt should be given to debtors, as long as reasonably possible. Too much of leniency should, however, be avoided as it can make the debtor careless of his responsibilities. The best attitude on the part of the collection manager is to show tactfulness, courtesy, firmness and patience.


Collection messages must be persuasive in their contents and approach. Persuasion has one core purpose, viz. to make the reader accept a particular point of view and act in favor of the writer. Until and unless a collection message is persuasive, it may not achieve its purpose of bringing the desired response to the creditor. To do this, the writer is required to include in his collection message well-chosen persuasive appeals. The appeals can be positive or negative. The choice of appeals relates to the debtor’s previous payment record and the writer’s knowledge of collection policies and laws.
Positive Appeals: Objective of positive appeals is to exert an unseen, light pressure on the debtor to persuade him to make payment or the past-due account. Positive appeals include:

  • Appeal to cooperation
  • Appeal to Fair-play
  • Appeal to Pride

Appeal to Cooperation: Appeal to Cooperation is the mildest appeal. It is fully persuasive in its tone and effect. It appeals to the debtor to cooperate with the creditor and be considerate of his position. It wants the reader to be loyal to the creditor who has been courteous and friendly to him. It aims at arousing the sense of cooperation in the debtor by telling him that non-cooperation on his part is likely to put the creditor in an undeserved trouble. Of course, these requests are not made directly but, are made a part of the message suitably and meaningfully.
Appeal to Fair-play: Purpose of this appeal is to make the reader realize what is obligatory for him. It is usually developed by reviewing the facts, like how long a payment has been past-due, and that, since the  creditor has carried out his part of the agreement, it is but fair and honest for the debtor to make the payment. It makes the debtor feel that it is not just and fair on his part to keep the bills pending, although he has already received the goods.
Appeal to Pride: Appeal made to the emotion of pride should always be very subtle. The writer should employ utmost delicacy to touch upon the sense of pride of the debtor. It can be developed by referring to the good credit rating of the customer. Along with, the writer can also refer to the respect, dignity and the good reputation which the debtor enjoys, and which may be affected by keeping the payment with-held. This appeal is also not made directly but is conveyed tactfully and courteously by making it a part of the message.
Negative Appeals: Positive appeals are usually more effective than negative ones. However, if positive appeals fail to bring the desired action, the writer has to consider a negative appeal to stress the unpleasant consequences that may occur if the payment is still kept due, Negative appeals include:

  •  Appeal to Self-Interest
  • Appeal to Fear

Appeal to Self-Interest:  Purpose of Appeal to self-interest is two fold: Showing the value of the present advantages  the customer has Convincing him that further delay may cause him a loss. The writer may tell the customer about the advantage  of the credit account facility that he enjoys, and may hint at its termination if further delay is caused in payment of the outstanding dues. He should make it clear to the debtor that payment of the dues is in his own interest, since it is he who is the beneficiary of these advantages. He should, however, convey this note of warning to the debtor in a polite and courteous manner, and not through abusive or threatening language. His objective should be to convince the debtor to bring him to the state of payment.
Appeal to Fear: Appeal to Fear is a strong negative appeal. It is seen, when all appeals fail to make the debtor clear his outstanding dues, the appeal to fear works. Stirring fear in the debtor’s mind of the legal consequences of non-payment of the past-due account is the main objective of this appeal. The debtor should know that further delay in payment of the dues shall result not only in his losing the present advantages but shall also force the creditor to turn the matter over to the credit bureau or the collection agency, or take it to  the court of law to seek relief.


Although collection policies of different organizations vary to some degree, there are general relevant laws which govern them. Knowledge of collection laws and collection policies of the organization, is very essential for the collection manager. The collection manager must know just how soon after the payment due date, the messages should be sent, and what should be the time interval between two messages. To protect people from unreasonable persecution and  harassment by debt collectors, the state law tells when a  collection manager may contact a debtor, how many times he  may call, and what information he may provide to the debtor before proceeding further. Similarly, collection policies of different firms and organizations lay out the steps and strategies to be followed by collection managers or the credit bureau to collect past-due accounts.
It is, therefore, imperative that a collection manager, in addition to the knowledge of collection appeals, also has  knowledge of the collection policies and laws to be able to write effective and valid collection messages.