Debt Collection Letter (Samples & Templates)

Inevitably, some customers will always have trouble paying back the money they owe you on time in business. This is a common scenario, particularly when the economy is on its low. According to experts, unpaid dues and bad debts are unavoidable no matter what industry you belong to, and unpaid debts can really hamper the business’s growth as it significantly restricts the cash flow.

It is common for both small businesses and large corporations to suffer from bad debts at some point in their existence. While the latter can easily tackle the situation, smaller businesses normally depend on the reimbursement of debts to survive. In dire situations, poor debt collection may lead to a collapse of the business due to a lack of cash flow at vital operation stages.

Debt collection letters play a key role in the debt collection process. They can help you save money and time and help you maintain a positive relationship with your non-paying customers. Most importantly, they can help ensure the survival of your business by significantly reducing the debt risk.

Debt is the money borrowed by one entity from another. Many corporations and individuals use debt as a mode of making huge purchases that they could not have otherwise afford under normal circumstances. A debt arrangement allows the borrowing entity to borrow money under the condition that it is to be paid back at a given date, usually with interest.

Debt collection is when a company or collection agency tries to collect past-due debts from borrowers. To do this, they usually send debt collection letters to the party in debt. The letters are usually sent to remind the borrower that their debt is past due. The debt collection agencies and debt collectors use the information that you provide when applying for the loan to contact you. Your current address, your phone number, and contact information from your guarantors are used to ensure that the letter reaches the right party, and the debt is repaid.

Laws: 15 U.S. Code § 1692g

Uses of Debt Collection Letter

When it comes to debt collection, no business wants to end up in an awkward situation. Most businesses face the prospects of debt collection daily, whether it is an unpaid bill of a hundred dollars for products sold or thousands of dollars in service rendered. They may also have some people who do not want to pay the money owed at some point. Using a debt collection letter in such instances can help get you the results you deserve for your business.

The letters may be used to:

To notify the debtor of payment default

There are various situations why someone may fail to remit their loan payments on time- they may have forgotten about the payment, have issues processing the payment, or have challenges making the payment. Debt collectors use debt collection letters and phone calls to contact delinquent borrowers and try to convince them to repay their loans. Such letters are used to notify the party in default that their payment is due.

To make a request for payment

The debt collection letter may be used to request the defaulter to repay their loan. After the defaulter has been notified of late payment and has failed to do so, another letter may be sent to them to notify them that their payment is past due and that they should make the payments as agreed when taking the loan.

To warn the debtor of legal actions

A debt collection letter may be sent to the defaulter after they’ve failed to heed the first two letters notifying them of their late payments. The letter may be sent to the defaulter, warning them of legal actions that may be taken against them should they continue to default on their loan.

To collect personal debt

The debt collection letter may also be sent when one is looking to collect personal loans owed to them by people they know. They may include their friends, family, colleagues, etc. The letter is to notify the defaulter of late payment that they ought to have made on a specified date.

To make a friendly request for the first time

The letter may also be used when making a friendly request for the first time to collect a debt. The letter is sent out to the defaulter, usually with one or two days of default, just to remind them politely that they are supposed to repay their loan. In such cases, the letter is written in a polite and friendly tone as the defaulter may have simply forgotten about the loan or maybe have forgotten how to remit their payments.

Necessary Components of a Debt Collection Letter

When writing a debt collection letter, there are key components that you must cover in the letter to make sure that the defaulter understands your reason for writing.

These components include:

The debtor’s name

The debt collection letter must mention the name of the debtor in default. It is important that when writing, you include the right name of the recipient. Check the loan application to get the name of the person to whom you should address the letter.

Amount Due

Another key component to include is the amount currently due. It is imperative that you indicate the exact dollar amount that is to be repaid. Subtract any amounts that they may have paid before and add any interests that may have accrued during the loan’s total duration and any other amount that they are supposed to pay for defaulting on the loan. It is vital that you mention the exact amount to make it easy for the debtor to make the right payments.

Provide your details

Besides that, make sure to mention your name, i.e., the debt collector’s name. It is important that you mention your name to help the debtor understand who you are and why you are writing. It is normal for people to simply forget to repay their loans on time. By reminding them of your name, the loan amount, and why you are writing may help them remit their payments as soon as they get your letter.

Consequences of continued default

Lastly, provide a statement on the consequences of continued default. It is important that you inform the defaulter of any legal actions that may be taken against them should they continue to default on the loan. This may help convince them to repay their loan.

How to Write

Debt collection letters are very important for any individual or business looking to recover a debt from a defaulter. The letter must contain all the relevant information to help the recipient understand the reason for writing the letter. It should also be written in a formal tone following the proper format. When writing the letter, you should make sure to follow the guidelines provided by financial regulatory bodies in your state. Do not be harsh or threaten the defaulter in the letter as this may be used against you should the issue lead to litigations. Also, make sure to address the letter to the correct email or home address provided by the debtor at the time of application.

The format of a debt collection letter must be as follows:

Header

When writing, start off by using a standardized header. At the top left-hand side of your letter, write your official name and address- if you are an organization, make sure to provide the business’s address; consequently, if you are an individual, make sure to provide a valid address for return mails. After writing the address, write the date of writing, i.e., the current date.

Salutation

After this, write the salutation. Choose an appropriate salutation for your letter. For more professional debt collection letters, it is recommended that you use greetings such as Dear, Mr., Mrs., followed by the first or last name of the recipient.

Body

After writing the salutation, start the body of your letter with an explanation of who you are, why you are sending them the letter. Make the first paragraph brief and direct to the point.

In the body, also make sure to mention the exact amount in default and also include any interests that may have accrued. Mention the total amount they should pay plus the interest.

After you’ve mentioned the exact amount, mention where you want them to remit their payments. If you are providing an account number, make sure to countercheck to make sure that you’ve not missed any digits.

Conclusion

Lastly, in the body’s last paragraph, warn the debtor of the legal repercussions that may follow should they fail to make the payments on time. End the letter with a complementary clause followed by your signature and official name.

Fair Debt Collection Practices Act

The FDCPA- Fair Debt Collection Practices Act is a federal- is a federal limit that regulates the actions of all third-party debt collectors who are have been given the mandate to collect a debt on behalf of another party. There are laws laid out to restrict the ways that the third-party, i.e., the collectors, can contact the defaulters as well as when and how that contact can be made. Should the collector violate the set guidelines, the defaulter can decide to sue the debt collector for any damages and attorney fees.

The FDCPA requires that the debt collection letter should state the terms of the agreement. The FDCPA outlines that the loan is repaid only as per the agreement and that the debt collector should not formulate any new agreements that work against the debtor after offering them the loan. For instance, the debt collector may decide to increase their interest rates on all the loans that they are issuing. Such interests should not apply to loans that have already been issued.

Also, the FDCPA prohibits entities from engaging in abusive practices. Debt collectors under the FDCPA are prohibited from using any form of abuse or harassment when attempting to get the debtor to repay back the loan. They are now allowed to threaten violence against the debtor, their property, or reputation.

Consequently, the FDCPA also demands that the debt collector adheres to time and place restrictions. They cannot contact the debtor anytime that they feel like. They can also not physically come to collect the debt from the debtor at a place other than their mentioned address as per the agreement.

The FDCPA also outlines that customers be provided with enough time to dispute and obtain validation of debt information. All customers must be provided with enough time to dispute and obtain validation of debt information. How has their debt accrued such much interest? Why are there other charges included in their loan amount? The information they obtain must clearly highlight these two questions and answer any other questions that they may have with regards to their loan amount.

Important Factors to Consider When Writing a Debt Collection Letter

A debt collection letter is important in making sure that all receivables are flowing smoothly by notifying the debtor of a payment default, asking them to make a payment, and warning them of future legal actions if they fail to repay the debt. As such, it is important that when writing the letter, you consider various important factors to make the whole process run smoothly.

Some of these factors are:

Understand the debt condition

To begin with, you should start by understanding the condition of the debt. Before writing the letter, it is important that you first evaluate the fees, tax surcharges, and any interests that may have accrued on loan. Go through the loan application to see the interest rate that was included in the loan.

Calculate the right amount

The next thing to consider when writing a debt collection letter is to ensure that you calculate the right amount. Mention the exact amount that should be paid. The amount you list should include any interests or extra charges that might have been accrued during the repayment process. Make sure to go through the loan agreement to make sure that you only include amounts that were initially agreed upon during the loan application.

Consult with your lawyer

The next thing you may want to consider before writing a debt collection letter is to consult your lawyer. It is always recommended that before drafting a letter that may potentially be used in court, that you consult your lawyer to help you get the right words to use when crafting the letter. This will also help you stay in line with your state’s regulations on debt collection.

Do not threaten the defaulter

When writing the letter, you also want to make sure that you avoid any threats. Threats may lead to unnecessary litigations that may end up costing you more than you may have gained from the loan.

Validity of a Debt

There are various things that must happen for a debt to be considered valid.

Some of them are:

  • The debt collector must clearly state all the terms of the debt agreement so as not to be confusing or misleading if the terms of the agreement are confusing or misleading the agreement may violate the FDCPA.
  • The debtor must be provided with methods of validating and obtaining validation of debt information.
  • Lastly, the letter must state the debtor’s name, the amount which is currently due, the debt collector name, and a statement on how the debtor can challenge or refute the amount and/or the validity of the debt owed

Note: The debt is usually assumed to be valid unless the debtor disputes the debt’s validity within 30 days after the initial notice.

Where to Send a Debt Collection Letter

The letter must be sent to the debtor’s home address or any other address that they initially approved during the loan application. Sending a debt collection letter to other places may be considered inconvenient or unusual places as designated in the Fair Debt Collection Practices Act. Any debt collection letters- according to the FDCPA- must only be sent to those places with the debtor’s previous approval.

Debt collection letters must be transparent and clearly state the name and address of the debtor. It must also comply with all the Fair Debt Collection Practices Act. If key information such as the names or terms of the agreement is not included or is misleading, the letter may be considered a violation and breach of legal business practices.

How it Should be Delivered

There are various ways that the debt collection letter can be delivered. This, however, must be in line with the initial loan agreement and must also be in line with the FDCPA.  Some of the ways in which you can deliver the letter include:

Personal delivery

One may decide to deliver the letter personally. Personal deliveries normally come into play when you know the person well. One advantage of delivering a letter personally is that you know that the recipient received and read it and are now aware that they’ve defaulted on a loan. Personal delivery is usually recommended for personal loans.

Ask someone to deliver it for you

One may also ask someone that they trust to deliver the letter to them. Some people always find it hard to request back any loan amount that they may have given as they may fear destroying their relationship with them, or maybe they don’t have the time to do so in person.

Have your lawyer deliver the letter

Another way to deliver a letter is to do so through a lawyer. It is recommended only to use a lawyer when your attempts to get the debtor to repay their loan have borne no fruits. Using a lawyer is also recommended as it shows the party in default that you are ready to take legal actions against them, and you have the resources to do so.

Hire a server or similar support provider

Another way in which one can deliver their debt collection letter is to hire a process server or similar legal support provider. You may decide to hire a third party to help you in following up on the defaulter to get them to repay the loan. Various legally set up entities can help one in collecting their loan, such as the Credit Bureau of Statistics.

Have the debt collectors send it

Lastly, one may consider using a much simpler method to send the debt collection letter- using registered mail. Registered mails are very important when sending business correspondences as you will be given a receipt to show that the letter was indeed mailed and that the recipient received it. When sending the letter via registered mail, you must ensure the recipient’s address is right to ensure that they get the letter.

Debt Collection Letter Samples

Michael Stephen

653 Ring Road

New York, NY 752

12th Feb 2021

RE: Debt Collection Letter

Dear Tony Schmitt

URGENT: PLEASE READ THIS LETTER IMMEDIATELY

Despite our previous attempts, the above amount due hasn’t been paid. As such, we would appreciate you making the payment as soon as possible.

Amount Due: $450

Please Remit Payment to 653 Ring Road, New York, NY 752

We regret to inform you that unless the payment is received by 25th Feb 2021, this collection will be handed over to our debt collection agency. This could seriously affect your credit rating. We urge you to contact us to make the payment or arrange any alternative modes before the due date.

You have the right according to the FDCPA to dispute this debt by submitting a written notice within thirty days of receiving this letter. If the letter is not disputed within the said period, the collection will be considered accepted by the debtor.

Sincerely, Michael Stephen.

Free Debt Collection Letter Templates

It is not always as an individual that we get to write debt request letters; as a company; however, this may be a norm. Nevertheless, it is important to always get the tone and format right when writing. You have to present yourself professionally and use a formal tone as the letter may later be presented in the court as proof. Download and use our free Debt Collection Letter templates to help you craft a letter that will contain all the information and help the debtor repay their loan. Download today and get started.

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Frequently Asked Questions

Where should you deliver the debt collection letter?

The letter should be delivered, either in the debtor’s house or places that they have previously approved.

Can I pay my original creditor instead of a collection agency?

At times it may be confusing to know if you should pay the debt to the collection agency or the original creditor as it is normal for debts to change hand so many times. At times, the creditor will hire a collection agency to collect the debt for them. It is important that before repaying a loan, you first ask the debt collector if they own the debt. If not, you can negotiate with the original creditor; otherwise, any payments are to be made to the collection agency.

What happens if a collection agency cannot validate debt?

It is important that before you pay any amount to the debt collector, you first confirm that the debt belongs to you. Debt collectors are legally obligated by the FDCPA to send you a debt validation letter highlighting the debt, how much you owe, and any other important information that should be made available to the debtor. If the debtor fails to validate the debt, you must not make any payments until they do.

One of the key elements of owning and running a business is getting paid for all the products and/or services you deliver to all your clients. At times, you may not be able to receive full payment from your clients from the beginning. Not all clients are usually forthcoming with payment, requiring businesses/individuals to use debt collection letters to recover their debts. We hope that this debt collection guide has provided you with all the information necessary to help you craft a professional debt collection letter that will help you collect all your debts with ease.