Are you wondering on the best way to write a debt recovery letter without breaking the law? This sample dept recovery letter will be of tremendous help to you. 

Collecting debts from debtors can be quite complicated at times. Even though you have to maintain a good relationship with the debtor because they are your customers, you still want to remain fiscally responsible and collect debt as at when they are due.

When you are collecting debt from defaulting debtors, you should have in mind that you have your reputation to protect in your locale. Make sure that you do not act in any way that will bring a bad name to your business, that is, you should not harass or insult your debtor because this can lead to an undesirable lawsuit in addition to damaging your reputation. A bad reputation can go a long way to kill your business by making you to lose more customers and profits.

A debt recovery letter or a letter of demand is a letter that demands the subject of a debt to settle their outstanding bill, which is in default, within the certain time specified and informs him about the total debt amount. A final notice can be sent to your debtors as a final opportunity to make payment before you employ a professional debt collection agency to take over.

A debt recovery letter should be written in a clear manner, free of any form of ambiguity so that the client will understand exactly your intention of writing the letter. The words should also be firm, so as to correctly pass your message.

A standard debt recovery letter should contain the following;

  • The exact amount that is being owed
  • What service was provided and when the invoice should have been paid
  • It should also include a warning of legal action and any collection agency that will be operating on your behalf

A debt collection letter is always sent by post or fax. These two methods are usually used so that the debtor can confirm that he has actually received it in writing. The fact that the letter has been sent and receipt confirmed means that it can be tendered as evidence in the law court.

A debt collection letter template is used in the following forms:

  1. General reminder letter: this is also known as a “soft letter template”. It serves as an initial reminder and an optional follow-up reminder; both includes the full amount of the invoice. This letter tries to stress on the payment of the outstanding debt but does not specify a definite date for the repayment because it is the first reminder. The number of this type of “reminder” can vary between one to three. Here is a sample of this type of debt recovery letter.

Dear (name of debtor),

We regret to notify you that due to your unpaid debt amount of (full debt amount, additional charges and interest cost) to (creditor’s name and company), from today, (date) we have passed your case to court. You are now to be contacted by official court attorneys who will notify you of the hearing date. Therefore you will be served a subpoena to appear at court where you can present your defense.

If you wish to settle the outstanding amount, please do not hesitate to contact us.

Yours faithfully,

(Name of contact person, name of debt collection agency)

2. Final demand: this is also known as the “letter before action”. The letters contains the total amount of debt, late payment costs (if applicable), and the interest cost. It puts emphasis on the telling the debtor that he or she needs to repay the debt as soon as possible, while pointing out the total amount of the default payment and the deadline for settling the debt in full, before proceeding to legal actions.

Here is what such a recovery letter looks like;

Dear (name of debtor),

Despite our previous reminder(s), we still have not received any payment or answer from you. Therefore, we regret to inform you that if we do not obtain the payment of (amount) in full before (deadline), we will have no other alternatives but to undertake court actions against you in order to retrieve the debt amount for our client (creditor’s name and company). Please find the full debt amount and additional costs below:

Account value: (insert debt amount)

Late payment costs: (insert amount)

Interest cost: (insert amount)

Total: (insert amount)

Should your payment not be received in full within the next seven days starting from (current date) to (deadline), immediate court actions will take place.

We would advise treating this matter with urgency and we believe you will not ignore this final reminder. To save yourself the inconvenience of court actions, we kindly suggest settling the total amount of debt and additional costs as soon as possible.

We still trust court actions will not be necessary and look forward to receiving payment by return.

Yours faithfully,

(Name of contact person, name of debt collection agency)

The steps for writing a debt recovery letter are not set in stone, however, you should make sure your letter is firm and persuasive (which can lead to the successful collection of the debt amount even without using court actions) and legal.

Debt recovery letters should only contain legal statements. Harassing, insulting and oppressing words have no place in this type of letter, else you can run into the risk of being sued by the debtor.

Debt Collection Limitations

At both the state and federal levels, there are laws that are put in place with the intention of regulating the manner in which debts are collected. Federal laws such as the Fair Debt Collection Practice Act (FDCPA) prohibits a debt collection agency from using abusive, unfair or deceptive means to collect past due debts from customers. However, this FDCPA law applies only to collection agencies and not creditors.