As a small business owner, a good skill to have is the ability to write an effective dunning letter. The term dunning letter comes from the word “dun” which means to ask a debtor repeatedly for payment. As that would suggest, these are the letters you’ll send out when customers or clients get behind on their accounts. It’s easy to let your annoyance with late payment convince you that the only effective dunning letter is a mean one, but in actuality, these letters can display more about you and your business than the delinquent customer.
How to Write an Effective Dunning Letter
Based on your own invoicing you should set up a delinquency schedule and letters accordingly. Typically this will be at net 30, net 60, net 90 and net 120 days behind. These are sort of standard hurdles used by credit card companies and other bill collectors. You can adjust this if you have unique formulas worked out with your own customer base. Setting out milestones like this will give you guideposts for when to accelerate communications.
For example, at 30 days behind, it could be possible that a bill was never received, or they simply forgot to pay. As such, for the first letter you may want to remind the client that payment is due. This can be as simple as:
Just a reminder that you were billed for X on October 1, 2013, and has been 30 days since the payment was marked as due. Please contact us as soon as possible to bring your account up to date.
When writing a dunning letter, you want to maintain a strict sense of professionalism, treating the client like an adult and appealing to their better nature for payment. If you look up examples of what banks have done during the foreclosure process, you’ll see first hand what not to do. Often, foreclosed homes are left in severe disrepair – fixtures are gone, walls are knocked in, windows are broken, all because the process is often very contentious and unfair to would be homeowners. On a smaller scale, this can happen over the course of collecting on delinquent accounts if you come at people too harshly. Essentially, it incentivizes them not to pay you, simply because they now dislike you.
At the 60-day mark it is within bounds to make the wording of your letter a bit more forceful.
On November 1, 2013 we contacted you about an outstanding balance of X. That balance has yet to be paid. Please call us to resolve this matter immediately.
After the 60-day mark you’d be well within your rights to consider beginning a professional collections process and you can mention this in your 90-day letter.
The amount of X is now 90 days overdue. We have attempted to contact you to rectify this situation multiple times. If you are unwilling or unable to pay the amount due, we may face no other choice than to report this debt and begin a formal collections process. Please contact us immediately to return your account to good standing.
At 120 days you’d be within your rights to consider charging off the debt, and presenting prior communications in subsequent tax filings as the reason for writing off the debt. You could also report the debt to credit agencies as going to collections, if it falls within those requirements. Your letter however, should still make every attempt to collect the debt.
Your outstanding balance is now four months overdue. Without any communication from you about how you intend to resolve this matter, we will begin taking steps to report the balance to the appropriate credit agencies and will begin pursuing all options open to us to collect this debt. Please contact us immediately to resolve this issue.
Even in unfortunate circumstances professionalism is the key. Keep the letters strictly to the facts – balance due, time spent, etc. Should the client attempt to contest the debt, you don’t want to have anything in these dunning letters that could give them standing.