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Writing a Debt Collection Letter or Replying to it – Would it be a Better Choice?

Debt Collection letter

Lending and borrowing is something that all depends on the financial status of a person. There are rarely any people above a certain age who have never needed to borrow any money. Especially in today’s world, there are many goods that you probably won’t pay for upfront with your own money. So, you might go for various financing options. These are, after all, a form of credit. 

Lending money through these types of deals has made this business more lucrative than ever before. Now, both the lender and the borrower are taking a risk in the arrangement. As a creditor, you are required to send a letter to the debtor if they owe you an unpaid amount. On the other hand, as a borrower, you’ll have to deal appropriately with such a letter. Here is some useful information for you regarding both these matters and how to write a debt collection letter.

What should you do if your debtor misses out on payments?

As someone who lends money, it is understandable that you are concerned about an unpaid debt. After all, it might involve quite a large amount of money and you’ll incur a great loss if it goes unpaid. Especially since the Coronavirus pandemic, this type of situation is commonly faced by many creditors. This is because of the financial hardships that so many people are suddenly facing. 

As a result, the government has put forward some guidelines as to how you must deal with such cases. So, you must be careful in this matter. Try reaching out to the debtor with a letter or e-mail as per the protocol to remind them of the debt. Only after a few reminders would it be justifiable to go to court.

What exactly is the purpose of writing to your debtor?

In case you’re new to this, you might be wondering about the significance of a letter. After all, what more can a letter do more than just requesting and informing? That may be true in other matters, but the same can’t be said for this one. You might be thinking that a letter probably won’t get you the money you owe. And, to some extent, that’s true. 

However, another way to look at it would be that it opens up a way for you to take the next step. Moreover, according to the guidelines, you need to inform the debtor in writing before taking any step. Otherwise, they have the right to complain in court. Therefore, it would put you at a legal disadvantage if you don’t know how to write a debt collection letter. 

When must you write to the debtor?

As we have seen, you have to inform the debtor about any step you take in writing. Also, it is advised that you carefully preserve a copy of the letter just in case you need it. 

In total, you have to write a debt collection letter in at least four types of situations. Once you have sent the last one, you can start a legal proceeding. Before that, you have to write to the debtor in the following situations:

  • Reminding of the debt

First, you must try to reach out to the debtor with a call or meet with them. If you’re unable to do so, only then are you generally required to write to them. The reminder is the very first letter that you are to send to them. You have to inform them of the amount they owe you and other details of the debt arrangement. You shouldn’t mention anything about taking any action. 

However, you can let them know of your procedure if you want. Give them a deadline within which they have to make the payment to you. This letter should serve purely as a reminder. Also, do offer them help in paying you if they need it. Encourage them to make their problems clear, which would be the most appropriate thing to do. 

  • When you got no reply to the reminder

In many cases, the client chooses to ignore the reminder. You might wonder what to do in such a situation. It is not yet time to take any action. Instead, you have to send them another letter to follow up on the first one. This time, you can take a comparably firm stand. 

However, don’t threaten them with consequences yet. You are still obliged to keep a fairly moderate tone at this point. Urge them yet again to reach out to you about their problems. Try to get to know why they’re unable to pay you. Also, it might be worth offering them some kind of affordable payment arrangement, maybe a lower installment amount is what they need after all. 

  • Warning them about the consequences of ignoring

Didn’t get any response to the previous letter as well? In that case, you can now start giving them warnings to not ignore you. Let them know of the legal actions they may face if they do so. At this point, it would be fair to do that, and the regulations are in your favor. However, don’t make any unreasonable threats. 

You will always have to proceed fairly with this matter till its end. Also, keep in mind that you have to try to reach the client through other ways. Otherwise, this letter from you won’t be considered as being just. The regulatory authority stresses fairness and justice in the dealings of lending and borrowing. 

  • Notifying the debtor of taking action

If all of the previous three letters get ignored, you just have to send the last one now. Also, you are now free to go to court. Before that, write to the client, informing them that you’re taking action. Make it clear about what proceedings exactly will you start against them. 

After all, they have the right to know that under any circumstances, they can be dragged to court. Again, you must remember to keep all records that you have reached out to the client and given them their fair chance. That would make sure that the court would decide in your favor and order enforcement action. 

Things to keep in mind while writing a debt collection letter

So far, you have got an idea as to why and when to write to a debtor. Now there are certain things that you must know if you’re new to writing to a client. First, make it as short as possible. You don’t need to make it larger than it should. This might be obvious to you as that’s how business letters are usually written. Keep out any information that is not essential to put in it. 

Also, write each of the letters in the proper tone according to the situation as discussed. If needed, take help from an experienced person by all means. Most importantly, assure the debtor that you’re trying to help and are compassionate rather than get them in trouble. 

How do you reply to a debt collection letter?

Now that you know how to write a debt collection letter, you might also need to know how to respond to one. After all, you might come across situations where you need this knowledge. When it comes to responding to such letters, there can be different kinds. Just the same way that there are various ways to write them according to the situation. 

So, you need to go through the letter, first. Check the amount that you are asked to pay and verify the other details mentioned in it. Make sure that all the information matches with the agreement you made. If you detect any discrepancies, you have the right to point them out to the creditor. 

Also, do mention any problems you’re facing in making the payment. They are usually helpful and act considerately in such matters. Therefore, you must reach out to them by all means. You are strongly advised against ignoring the letter. Have any doubts on whether you owe them? You should take it up with them as soon as you can. 

What if you think you don’t owe them?

Even though it rarely happens from what it seems, creditors can still make this type of error. You might get a letter from them asking you to pay an already cleared or settled amount. In such cases, you can simply write back to them, asking for proof. You have the right to do so under strict regulations. In this situation, they will have to provide you with adequate proof. 

Are you unable to pay them?

During financial problems, it is understandable if you’re having trouble keeping up with the arrears. In such cases, you’re going to receive a reminder. As is clear by now, you must never ignore them it would only bring more trouble to our life. Instead, ask them for some time, if you can arrange for some money, try offering them a full and final settlement.