The collection letter is a standard practice in the debt collection industry. Sending out well written, professional letters informing debtors of their balances and due dates is a part of every productive debt collection strategy. Those letters are also the go-to for evidence should you be force to take your debtor to court. By all accounts, collection letters are an absolute requirement for proper debt collection.
Despite the importance that collection letters have in bad debt recovery, the process of sending them is becoming increasingly expensive and the results have been growing consistently weaker. In a recent article for Collection Advisor Magazine, Bob Dunham provided an interesting argument in favor of collection letters. He suggests that while letters as a whole are finding less and less results, letters that are creatively written and designed are breathing fresh air into a stale form of collection. He believes that the effectiveness of collection letters is actually on the rise.
The Uphill Battle Collection Letters Face
Dunham begins his article by explaining why the profit margin on collection letters has fallen to an all-time low.
The most significant factor here is the cost of mailing those letters. Dunham explains that a stamp that only cost 29 cents in 1991 costs 46 cents today. Add to that the increased costs associated with paper and envelopes and collection letters are costing creditors almost double from what they were costing 23 years ago.
In addition to Dunham’s point about the cost of sending collection letters, people have grown accustom to throwing out what they perceive to be junk mail without even looking at it. Combine this with the attitude of debtors who are looking to “duck” collection agencies and it can be very difficult to actually connect with a debtor through collection letters.
What Types of Letter Are Working?
In his article, Dunham explains that certain types of letter strategies are producing better returns. The successful debt collector today is using strategies like offering discounts and payment plans that encourage debtors to call collection agencies to work out a resolution. Dunham also suggests that adjusting the mailing strategy to focus more letters on newer debts in wealthier zip codes and fewer letters on older debts in poorer zip codes will improve results. One last suggestion that he makes is to make sure that your letters are offering settlement options that the debtor can actually afford.
The positive results Dunham discusses with regard to different mailing tactics shows that one of the most important things you can do with your collection letters is to try different approaches and track their results. Over time, you will develop a detailed database that will allow you to determine the mailing approach that has the best chance of success for a given debtor.
As the cost of sending collection letters continues to rise, the idea of sending the same form letter to every outstanding debtor at the same time intervals will continue to become obsolete. In order to save money and increase effectiveness, you will want to craft a collection letter strategy that is uniquely tuned to each specific debtor’s circumstances. This unique approach could be the difference between having a debtor call you to settle their account and having a debtor throw your form letter straight into the trash.