Past Due Notices: How to Write the Perfect Collection Letter

Getting paid by your customers is critical. With a low cash flow, businesses face the risk of having to close down. Being proactive in your Accounts Receivable collection is a must.

When it comes to late invoice payment, the more days that have passed since your payment due date, the lower the probability is that your invoice will ever get paid.

Being effective in your communications with your customers is therefore essential. On top of emails, formal notices like letters can be a good way to encourage your customers to pay sooner rather than later.

• What should a letter requesting payment contain?
• What tone should be used?
• When should you start sending letters for late payment?

Keep reading to find the answers, as well as sample collection letters you can use right now.

With Upflow, you can automate your collections emails and also send letters requesting payment to your clients in just a few clicks. Streamlining your A/R collection process means you’ll find the perfect balance between being productive and retaining a personal touch with your customers.

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What Strategy Should You Adopt for Letters Requesting Payment?

When to Start Sending Past-Due Notice Letters?

Sending past-due notice letters work best when you’ve already tried to contact your customer about their late payment - by email and/or phone calls.

A past due invoice letter is a great way to make matters more official. Used as a follow-up of other past due notices, letters requesting payment convey a sense of urgency. They show you're taking the situation seriously, and so should your clients.

Knowing when exactly to send them depends on your overall payment reminder strategy.

You might decide to use letters as the last notice before escalating the matter, or you could use them early on when the payment becomes one month overdue, for example.

What Tone Should You Use in Letters for Late Payment?

A past-due notice is a friendly reminder to your clients that they haven’t paid yet. As time goes by, we recommend getting more assertive (but still remaining polite). This is true for collection letters and collection emails, too.

Since we're in the digital age, letters are seen as more formal. Start with a polite greeting like “Dear Sir or Madam” and stay formal in the body of the text too - we talk below about the specific elements to include.

Last but not least, your tone should reflect the nature of the relationship you have with your customer. A long-term customer might be offended by too much formality, while a new one might feel more valued by it.

All in all, it’s best to have several payment reminder templates for different accounts or subgroups of accounts. You could have one for long-term customers, one for those who pay via a specific payment method (online payment, credit card), etc.

Being specific will not only help you maintain the relationship in a potentially tense situation; it will also make your follow up more effective.

Need help setting up your collection strategy? Start looking at the right A/R metrics!

What to Include in Post-Due Collection Letters

Regardless of the tone and the context in which you send your past-due notice letter, there are a few elements that should always be included:

• Personal information: Includes the name and company name of your contact, as well as your business’ name. Being personal means ensuring your contact knows the letter is addressed to them (i.e. it's not a mistake) and also serves as a reminder of the services or products you’ve provided.

• Contact information: include your address, email, and phone number so they can easily contact you if needed.

• The original invoice: print and send a copy of the original invoice so they can refer back to it. Also include the invoice number and the amount due in the letter requesting payment (if there is more than one, make a list).

• The original invoice due date: highlight the number of days past-due by including the due date of the original invoice.

• The past-due invoice: if you charge a late fee, include it in an updated invoice that you attach to the letter and whose total amount and number you have referenced in the letter as well.
  
• Your payment methods: include specific instructions on how your customer can pay you right away. This could be a link for online payment where they can pay via credit card or your bank account number. The more payment options, the better.

• A payment plan (optional): suggest a payment plan with weekly or monthly payments to make it easier for your clients to pay you.

• Your next step: remind them of the next step you will take if they don’t pay within a certain time frame - limiting access to your solution or service, or taking legal action. This could also include a warning around accumulating late payment fees (or a mention that you'll have to use a collection agency). You can cite your T&Cs and/or your contract.

Sample Collection Letter

Now that you know how, when and what to include in a letter requesting payment, let’s have a look at some specific payment reminder templates. Below, you’ll find three templates with slightly different tones and content to suit different situations.

Payment Reminder Template for New Customers

With new customers, you want to make sure they’ve understood how to work with you and how to pay you. It might be that they didn’t get your payment terms right or simply that they’ve forgotten to pass your invoice to the relevant person in their company.

Regardless of the reason, it’s a good idea to remind them of what your T&Cs are and to clearly lay out your payment terms and methods.

You can also include a prompt to automate their future payments, which makes sense if you have a subscription-based business model.

We also encourage you to open the conversation by mentioning they can contact you if they have any questions about how your business operates.

Here is a payment reminder template letter to get you started:

Object: Payment Not Received for (XXX) Invoice.

Dear Sir/Madam (or To Whom It May Concern),

I am contacting you as part of our outstanding invoices follow-up. The invoice number (XXX) of (XXX) for (service or product provided) was due on (due date).

Unless mistaken, we still haven’t received payment for the above. You will find a copy of the original invoice attached to this letter.

Can you confirm that this invoice has been recorded by your accounting department and give us an estimated payment date?

To pay this invoice, you can (payment instructions).

To prevent any future late payments, you can also choose to automate your payment by (payment instructions).

We are also available to discuss any issues or questions you may have about our company.

(Your contact info)

(Your company)

Payment Reminder Template for Long-Term Customers

If a long-term customer hasn’t paid you, you would probably assume one of two things:

1. It’s a mistake and they have forgotten about it.
2. They don't have the funds to pay you.

Either way, sending them a formal notice should open the conversation and make it a priority for them.

Depending on your business model, it can make sense to involve your sales representative or account manager in the process, earlier rather than later.

Here’s a template letter you can use:

Object: Unpaid Invoices

Dear (Client Name),

We hope that all is well with you.

(We / Sales Executive name) have tried to contact you several times regarding your outstanding invoices follow-up.

Your current outstanding balance with us stands at (total amount), of which (amount) is overdue. Your older invoice is overdue by (days overdue).

You will find a copy of the original invoice with this letter (as well as an updated invoice that includes our late fee).

We would appreciate a swift payment to settle this matter. To pay this invoice, you can (payment instructions).

We are happy to discuss any issue you may have to find a mutually agreeable solution as soon as possible.

(Your contact info)

(Your company)

Payment Reminder Template for a Final Notice

The last notice letter is the ultimate way to bring attention to the non-payment of an overdue invoice. If you have a red stamp handy, this is when you should use it!

These final notice letters should be used in only the most dire situations, when you’ve tried repeatedly to contact the customer over a long period of time (say, 60 or 90 days overdue).

In most situations, this letter would solve matters quickly. If not, be ready to follow through with concrete actions.

Here is a sample final notice collection letter you can use:

Object: Last Notice Before Legal Action.

Dear (Sir or Madam),

Despite several reminders sent, your company has not paid yet the following outstanding invoices:

• (List of invoices with reference numbers, amount and due date)

You will find a copy of all the aforementioned invoices with this letter.

You can pay us directly by (payment instructions)

We have already (action taken, such as service restriction) and demand that you proceed to the payment of (XXX) within (X business days).

Would you need a payment plan, we are happy to discuss it together.

If we don’t hear from you by the deadline above, we would regrettably have to take legal action and ask for compensation for our financial loss.

We look forward to hearing from you,

(Your contact info)

(Your company)

Key Takeaways

• Formal letters requesting payment are a great way to add some urgency to your communications regarding unpaid invoices. They should be used after several attempts to contact your client by email and phone call.
  
• In essence, letters are more official than emails and their tone will be more formal. We still encourage you to be as personal and specific as can be, both to be more effective and to keep your customer relationship positive.

• Include all the necessary information your client needs to pay you straight away. The easier you make it for them, the more likely they are to pay you straight away.
  
• Offering a payment plan can be a solution to get your client to get back to you, as it can help with a cash flow problem.
  
• It’s better to have several template letters for different situations, like a new client, a long-term client, or a past due account that needs to be escalated further.

• In order to focus on accounts that need more attention, you can automate your collection letters (and emails!) by using a solution like Upflow.