Receivable/Accounts - Information for Credit and Collection Issues

Tuesday, August 2, 2011

The Collection Letter

As I started writing this article on Friday, I was looking at a large stack of collection letters about to go out to a number of debtors this past week. And it occurs to me that the collection industry and how it uses letters has changed a great deal over the last two decades.

When I first got into the collection agency business as a collector, I remember being responsible for preparing final demands for a national courier company. They were pre-printed on a dot-matrix fed paper (three to a page) with giant red letters saying “Final Notice”, and the noisy, primitive dot matrix printer filled in the name in the box, and one of the staff had to tear apart the demands and mail them.

Back then, a letter was twenty cents, and a phone call was a dollar. And our agency just broke even on this letter campaign.

In this day and age, the letter is closer to a dollar, and the phone call is closer to free. Debts haven’t changed, and the postal system is more expensive to use. And in all that time, I’ve seen the best and worst of collection letters, both in how they looked, what purpose they served, and what the letter strategies were (or weren’t). Agencies everywhere are still using collection strategies with letters that are wildly ineffective and outdated.

So, what purpose should a collection letter serve?

Follow the Law
Every file assigned to a collection agency in Ontario must have an initial letter sent notify the debtor that a collection agency is acting as their agent. Calls can commence six calendar days later. Every file needs one introductory letter, period.

As well, collection letters that include fake court claim papers, abusive or misleading language, or disclose to an outside third party that there is a debt owing to a client are in violation of the Collection Agencies Act.

Garner a Response
Many files sent to a collection agency come without the ability to telephone them – no telephone number is available. A debtor cannot possibly pay their account without knowing about it, so a collection letter may be the best way to initiate contact with a debtor. This can be done either before or after skip-trace work has been done on the file.

Often a collection letter can cause an inbound call from the debtor, which can then establish verbal communication, and effectively determine whether the debtor will cooperate or not.

Get the Last Word In
If action is going to be taken (registering the debt on the credit bureau, undertaking legal action, etc), it is an excellent tool for notifying the debtor in writing of whatever final position the agency has taken when it has become obvious
that the debtor will not be cooperative on the outstanding balance. It is one thing to verbally tell the debtor, it is another to formally notify them in writing of the actions being taken as a result of their lack of cooperation.

Supplement, Not Replace Collection Activity
Yes, collection agents cost money. Good collection agents cost even more money. But they will be more effective ultimately for a client than a letter campaign. In my
experience, debtors are far more motivated to respond to a debt promptly and with payment when a professional collection agent is calling and asking for them by name,
rather than an envelope that can easily be ignored.

Measure Your Results
Your portfolio manager for the client should know what sort of results to expect and ensure that they continue. Sometimes listing patterns of a client can change. Also, it is worth assigning a responsible manager to work on continuous improvements through design, letter wording, scheduling, and inventory management.

Work With the Collection Team
While batch lettering is certainly necessary, working in conjunction with the collection staff to coordinate outbound letters is crucial. A higher caliber agency with a proper collection software suite will be able to grant collectors the ability to initiate letters on debtors assigned to them. These letters (within the allocated budget) can reinforce their telephone efforts. However, beware inexperienced collectors who attempt to have letters do their collection work for them. They will send unnecessary or repetitive letters out to debtors.

Bad Lettering Practices
I know of one collection agency that is solely based on lettering. They send three or four collection letters per debtor file. Their letter has a telephone number for their office, but it is impossible to reach a human being at their office. I had the opportunity to compete against this agency, and I had an inexperienced collection officer and a single collection letter go out on this portfolio, and we were able to
double the liquidation of our competition.

So where did this agency, and others go wrong?

• Don’t send a letter that looks like it was printed in your basement. Rather than send four poorly crafted letters in black and white, send one in colour, signed by a real human being, with a strong and effective collection message.

• Create a proper sense of urgency. Have a spot for the collection office to sign the letter. You have one opportunity to create an impression, so make it professional and with authority.

• Measure the results and build a letter campaign that gets good results. Beyond the required first letter, if you spend $5,000 a month on a letter campaign for a collection portfolio and it only returns $2,000 revenue, you have failed to manage your letter process properly.

• If you are running profitably on a first and second wave letter campaign, but there is minimal return on a third wave, why are you bothering? Decide if you are going to get a strong message out in one or three letters, and plan accordingly.

• What is the language of your letter like? Put yourself in the debtor’s shoes, and think if it will motivate them to cooperate, communicate, and pay their account.

• What kind of an envelope is the letter sent in? Does the envelope match the tone and professionalism of the letter within?

• Send positive letters too! If a debtor makes a partial payment, sending a balance letter reinforces their progress and keeps them in communication with your agency.

Final Demands and Outsourcing Billing
Because a collection agency is in the business of issuing and receiving responses from letters, you may be benefitting your business to either outsource a final letter with a deadline before the file goes to collections.

As well, collection agencies have the ability to send a letter out under your company’s imprint and letterhead, to smoothly notify debtors of outstanding balances before they go to collections.

What Is Your Collection Agency Doing?
If you have a collection agency working for you, ask them to share their collection letter strategy with you. As your business partner, they certainly should confer with you on the following:

• What is the collection letter wording? Are you comfortable with it? Understand that the stronger the language, the more likely the letter will be effective, but it does reflect on the client’s image and reputation, and should have a consistent message the client is willing to uphold.

• What are the measured results from the letter campaign? Any agency that is sending letters should be measuring cost, direct liquidation, and indirect liquidation (from callbacks, refusals turned into payments, and so on).

Some Expert Advice
If you are in need of advice on what to ask your current collection agency about their letter portion of your client portfolio, or you are seeking a service partner who will provide you with concrete measurements on their lettering campaigns, and work with you as a partner, I am always happy to provide you my professional advice.

My direct office number at Kingston Data and Credit is 226-444-5695.