As an entrepreneur, we’ve all had those customers or clients who are notorious for paying late. You’ve likely had to send a few notes that tell a customer “Hey, you’re overdue. Can you please pay us?”

These notes, which are also called “dunning letters”, can be sent via email or as a paper letter. Sounds simple? Actually, not really. To write an effective dunning letter requires great attention to detail and often creativity. The best collections teams are constantly testing dunning campaigns and making changes to try to improve them, and they are measuring their results.

Determine Payment Metrics

What do you want to measure to see how well your invoice system is actually working? This is a key consideration because it allows you to use data to judge your results and compare different campaigns against each other.  Some basic metrics you might consider include email open rate, email response rates (meaning, they replied), clicks on links in an email (if you have sent them a payment link, ideally), and percentage of recipients who pay within 30 days or 60 days.

The ultimate bottom line is simple: how much cash are you collecting and how quickly do you collect the cash based on your current system?

Email, Paper or Both?

Certainly, email is more convenient. It also allows the inclusion of links to payment options. Email is also easier to track and follow up on. That said, sometimes paper still cuts through the noise and grabs someone’s attention. It feels more serious. We wouldn’t recommend paper as a primary means of sending dunning notices, that would be crazy, but you may want to consider sending them alongside emails for greater effect if you have an invoice that is significantly overdue. If so, definitely refer back to the email in the letter in order to guide the recipient to quicker action.

Test the Subject Line and Copy

This goes back to the discussion above about metrics. Dunning campaigns are actually just another type of email marketing. Email marketers have long known that the subject line of their messages can strongly influence the likelihood of recipients to open that email. If you are sending a high volume of dunning emails, then it’s definitely worth your time to test different subject lines. Never test more than two subject lines at a given time in order to make sure you know the true impact of each change. What applies to subject lines also applies to copy in the dunning letters. Try two different versions of a letter to customers in the same segment (meaning size or days overdue or geography).

Adopt the Right Tone

Obviously, collecting money is serious business. However, bone dry or threatening dunning letters may perform worse than a dunning letter with a gentle touch or even a little bit of humor. You don’t know what’s going on with your customer; there could be major problems and a lot of stress. While that’s not your problem, you want to treat them with empathy.  So for the first letter in a dunning campaign, consider a conciliatory and relaxed tone. For subsequent letters, you may want to adopt a more serious tone with specified negative consequences (i.e. a service cut off or submission to a collections agency) laid out very clearly. To make it clear that matters are growing more serious with each letter, you probably don’t want to use the exact same dunning letter copy for the first, second and third notices.

If you are very unsure of how to write a good collections letter, you can have an attorney do it for you (or even post it on a legal site like UpCounsel where an attorney can write one for a relatively small fee).

Make It Personal

There is a reason why sales teams increasingly adopt tools that allow for brief personalized notes on outreach emails. Personalization works. It shows the recipient of a dunning email that you have taken the time to acknowledge them as a person. Granted, dunning and collection letters are not the happiest communication but the purpose is very similar to that of a sales email; you are trying to close the invoice, rather than the sale.

If you have a personal contact at the customer company, even a brief mention can humanize the interaction and reframe the request as coming from one person to another. Manual personalization of dunning letters can be very time consuming so you may want to consider using a system that can automate some of the personalization or allow you to quickly add a note to the body of an otherwise standardized letter. In this same vein, if at all possible, make the dunning email come from a personal email (joe@company.com) rather than a system email address (ar@company.com). Personal emails are more likely to be read and less likely to get filtered as Spam. 

Make It (Ridiculously) Easy to Pay

This sounds silly but including a link to direct payment options will radically increase the chances that you will get paid quickly. The link should take them to a payment gateway that can ideally handle credit card, ACH/EFT, and Wires. Make it stupid simple for the recipient to pay their debt.  For that payment link, as well, make sure that you are sending a secure (https://) domain.

Speed Up the Cadence

Many companies have a practice in collections and accounts receivable management that is to send out the first collections notice when a customer is 15 to 30 days late in paying their invoice. This may be too long to wait. A good amount of research has found that the earlier you notify customers they are late, the more likely you are to get paid. In fact, as often as not, late payment isn’t a conscious decision but an oversight or a reflection of your low priority in the bulging queue of an overworked individual/team. With that in mind, you may want to send the first note even if the invoice is a week or even a few days late. Consider, as well, the size of the customer and past customer payment behavior. If a customer pays 30 days late like clockwork, then it may be worthwhile to accelerate their invoicing.

Conclusion

After reading this, we hope you will have some ideas on how to think about building out a detailed and effective collections campaign structure. Most of what we talk about here can be turned into a repeatable process that you can fine tune and revise to improve results. You may want to revisit your process and look at the data three to six months after you first implement. You should see positive results that will convert into improved metrics for free cash flow!

This article was first published on Tesorio blog