3 Creative Ideas for Writing a More Compelling Collection Letter

3 Creative Ideas for Writing a More Compelling Collection Letter
Posted by   Brian Heller Nov 2, 2022

It’s an unfortunate, yet common, problem. A customer fails to pay their bill in accordance with the agreed upon payment terms. Despite gentle reminders via phone, email and even snail mail, the invoice remains unpaid, leaving you with what feels like last-ditch options. You could hire a collection agency (but their fees will bite into your profit), or send a demand letter threatening legal action (but they all look the same and never seem to work). Finally, you could choose (perhaps begrudgingly) to write off the debt.

Although there is no “one-size-fits-all” solution, and the best course of action may depend upon your company’s particular circumstances, most creditors would likely choose a collection letter if they could write it in a way that grabs the debtor’s attention. Below are 3 creative approaches I have successfully used in collection letters to motivate debtors to pay their outstanding bills, or at least, reengage in settlement discussions.

Before writing the letter, it is important to first review your agreement with the defaulting customer for some basic facts about the scope of your rights. For example, can you charge the debtor interest or late fees? Are you permitted to charge the customer for any expenses related to collections? If you hire an attorney to help draft the demand letter, can you pass this cost along to the debtor?

With this information in hand, consider employing one or more of the following overlooked or uncommon tactics in your next demand letter:

  • Most Common (but often overlooked/forgotten)Provide a copy of the calculated interest accrued, penalties, and collection costs, and remind the debtor that the longer payment is delayed, the larger the balance due will be. This calculation should include an estimate of future collection costs and attorneys fees.
  • Less CommonThreaten to report the unpaid debt to a business credit reporting agency like Moody’s, S&P, Fitch Rating, Bloomberg, etc., along with an explicit reminder that this action could potentially: increase their cost of capital; place them in default under any loan/debt covenants; and/or place them in default of, and/or give a termination right to a counter party in, any contract that includes a (fairly common) provision allowing termination in the event either party “fails to pay its debts as they become due.”
  • Least CommonThreaten to report their bad debt to the IRS via Form 1099-C, which would make the full amount of a write-off reportable as taxable income to the debtor. In this case, your demand letter serves to inform the debtor of what will happen if and when you are forced to write off their debt. By identifying your customer as the debtor on Form 1099-C, the IRS now has the option to treat the amount of their non-payment as a windfall, and hence, as taxable income. Best of all, while you may not have the bandwidth to chase debt indefinitely, the IRS certainly does. Better still, IRS debts cannot be wiped clean via bankruptcy. One final note: although you cannot actually write-off a debt until you believe collection is no longer possible, you can threaten to report it as such as a collection tactic.

As the saying goes, money talks, and when you can show the debtor how payment delays — or failure to pay — might impact their own bottom line, it may be the “stick” that ultimately works. If you would like help writing a collection letter, please feel free to contact Brian Heller at [email protected].

Brian Heller is a Member of Outside GC’s Washington D.C.-based team, and is an experienced technology and deal attorney, specializing in SaaS licensing, digital and social media, online advertising, mobile apps, cloud services, terms of use, data use and protection, content licensing and other technology deals. Brian has represented both vendors and customers and uses this experience to present reasonable positions on behalf of his clients. Brian can be reached at [email protected].


This publication should not be construed as legal advice or a legal opinion on any specific facts or circumstances not an offer to represent you. It is not intended to create, and receipt does not constitute, an attorney-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal questions you may have. Pursuant to applicable rules of professional conduct, portions of this publication may constitute Attorney Advertising.

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