Delays In Payment and Non-Payment

Just as the buyer follows up his orders, the seller keeps an eye on his customers' unpaid invoices.

When a customer fails to pay his debts on time, the seller sends him a reminder. If necessary, the reminder is followed by increasingly urgent collection letters (or: dunning letters).

Should the customer fail to respond to these letters, steps have to be taken to collect the account. This may be done by entrusting a collection agency or bank with the collection, or by bringing legal action against the debtor.

Collection agencies are commercial establishments specializing in the collection of bills. (Inquiry agencies usually are collection agencies at the same time.)

Collection through banks is effected, in most cases, by means of a sight draft. The creditor draws a sight draft on the debtor and hands it to his bank with instructions to pass it on to the debtor's bank for presentation for payment. Although the debtor cannot be forced to pay the sight draft, he will usually honour it if he is able to do so, as he knows that his refusal to pay will give the banker notice that he is in financial difficulties, with the result that the banker will demand repayment of outstanding loans and refuse to grant the debtor any new loans.

Reminders and Collection Letters

When an account becomes overdue, it is first assumed that it has been overlooked by the customer. Therefore the account is brought to the customer's attention by means of a copy of the invoice or statement, a printed notice, a letter, etc. These are called reminders. When sending invoice copies or statements as reminders, many firms add a rubber-stamped notation (Past due — please remit), a printed card, or a gummed label (collection sticker). The letters employed as reminders are usually form letters. Sometimes a reminder is included in an offer or sales letter sent to a customer (hidden reminder).

If the reminder does not produce any results, it is followed by two or more collection letters. In these letters various arguments and appeals are used to obtain payment or at least an explanation from the customer.

Specimen Letters

I. Collection Letter

Dear Sirs,

We wrote you on 5th March asking for payment of the overdue balance of £ 161.38, but so far we have not received any reply from you.

If there is an error or any other reason why payment has not been made, please let us know, and we shall look into the matter at once.

Otherwise we must ask you to send us your cheque without further delay.

Yours faithfully,