Credit & Collection Letters

Professor: Leticia EstevesBusiness Writing

University of Louisville

March, 2015Panama

Why is confidentiality crucial in the exchange of credit letters?

Credit Letters must be discrete. What to include?

What to leave out?

Why shouldn’t collection letters be demanding or threatening?

Credit involves the purchasing and receiving

of goods without immediate payment

What is Credit?

“Buying NOW and paying LATER”

enables a purchaser to acquire goods, even when cash is not currently available

Buying on credit can increase a company’s

volume of sales.

Why request Credit?

Buying and selling on credit have become a common and essential business practice.

Before granting credit, a company MUST be sure of:

a) costumer’s financial stability. b) ability and willingness to pay.

What needs to be considered?

These are verified by the exchange of credit information

Types of Credit Letters

1. applications for credit2. inquiries about credit worthiness3. reponses about credit worthiness4. letters granting credit 5. letters refusing credit

Fig 13-1 Applications1. Consumer applications for charge accounts

are usually made by filling out an application blank to provide personal information (home and business address, name of banks, account numbers, list of other charge accounts, list of references).

2. Business account applications are often made by letter. These letters should provide complete, accurate information and include credit references from banks and other business that have extended credit.

Credit inquiries

Department stores usually turn credit applications over to a credit bureau.

Bureaus keep files on people and business whose credit references and histories they have integrated.

When they determine an applicant credit standing (reputation for financial stability), they give the applicant a credit rating (bureau’s evaluation of the credit standing).

On the basis of this rating, the store decides whether or not to grant the credit.

When checking a business’s credit standing, a company may contact the references.

The letter of credit inquiry should contain all the known information about the applicant, and it should assume that the information will remain CONFIDENTIAL.

Fig 13-2 Credit inquiries

The inclusion of a reply envelope is considered courteous

Fig 13-3 Credit ResponsesSome companies use their own form for responding. In this way, they

can control the information given out, especially, limit the information to hard facts:

amounts owedamounts duemaximum credit alloweddates of accounts openingdates of accounts last saledegree of promptness in payment

Fig 13-3 Credit Responses

Opinions should be expressed discreetly, if at all (particularly when a credit reference is negative or unfavorable).

State ONLY objective facts to avoid libel suit

Most companies reiterate in the letter that they expectthe information provided to remain CONFIDENTIAL

Fig 13-4 Credit Granting Letters

When all credit references are favorable, a letter is sent to the costumer.

The acceptance letter should:

1.approve the credit2.welcome the customer and express appreciation3.explain credit terms and privileges4.establish good will and encourage further sales

Fig 13-5 Credit Refusal Letters

Sometimes a credit must be denied.

A letter refusing credit should:

1.give the customer a reason.2.try to encourage business on a cash basis3.have a positive and “you-oriented tone”4.suggest the customer to reapply for credit in the future

Show the applicant you desire and appreciate their business.

Remember

When you’re in Business…

Fig 13-6/7/8/9 Collection LettersNo matter how carefully a company screens its credit customers, there will be times when a bill goes unpaid and steps to collect must be taken….

The purpose of these letters is to get the money owed and maintain the goodwill.

Collection letters should be:

1. persuasive rather than forceful2. firm rather than demanding3. tactful rather than sarcastic4. “you-oriented”5. courteous, considerate 6. concerned about the customer’s best interest

Fig 13-6/7/8/9 Collection Letters

Usually sent on a series going from the mildest and most understanding to more insistent and demanding.

Collection letters should gradually become more insistent.

The final letter in a series, when all else has failed, threatenes to turn the matter over to a lawyer or collection agency

The tone will vary from positive and mild to negative and strong. (depending on past payment record of the customer)

Fig 13-6/7/8/9 Collection Letters

The intervals between letters may vary • from 10 days to a month at the start• from one to two weeks, later on

Fig 13-6/7/8/9 Collection Letters

Collection letters should contain certain information:

1. the amount owed2. how long the bill is overdue3. a specific action the customer may take

In general, most bills are paid within ten days of receipt, with nearly all the rest being paid within the month.

When a bill is a month overdue, action is called for.

The collection process must begin gently, often with a phone call.If this fails to get results, the letter series begins….

And now, let’s check the examples in your book….