What is a Demand Letter and How Does It Help Home Furnishings and Accessories Suppliers Increase Debt Collection Rates?
Collecting outstanding debts is a core function of every credit department. Writing off bad debt is never a good outcome, but it is all too common – businesses write off 1.5% of receivables annually. For credit managers in the furniture and home furnishings manufacturing industry, a demand letter is one of the most worthwhile, effective tools available to improve collection rates and reduce those write-offs.
What is a Demand Letter?
A demand letter is just as it sounds – a letter demanding payment on an account. At FMCA, we use a Ten-Day Final Demand letter to help our members address accounts that have fallen behind. When payments are made within that 10-day window, no fees are applied to the account. After 10 days have passed, the member can decide whether to hand the account to collections or if other action will be taken instead.
Thanks to our many years of experience in this industry, we can state confidently that Ten Day Final Demand letters get excellent results. Even when using the best information for making smart credit decisions – like the credit reporting tool offered by FMCA – some accounts are sure to fall past due. Using a Ten-Day Final Demand as a standard procedure for those accounts is an effective method of collecting as much of the debt as possible before the rest is sent off to collections.
Why Demand Letters Work
The clarity of the Ten-Day Final Demand letter is what allows it to be so effective. Sending an open-ended letter or making a few phone calls doesn’t have the same effect because there is no clear requirement for action. With a well-written demand letter that demands payment within 10 days or the account will be turned over to FMCA for collections and reported to the major credit bureaus. The debtor knows clearly what is expected and the consequences/action that will be carried out if they fail to address the debt in that time frame. Beyond the practical benefit of laying out expectations for payment, a demand letter can also serve as a paper trail for your collection process. Before turning the account over for collections activity, you will have a copy of the letter that was sent asking for payment of the past due amount.
Being the Squeaky Wheel
If a customer with a past due account doesn’t hear anything from your credit department, that past due amount will become easier to ignore. It will easily slide from the 30-day category over into the 60-day category, and eventually, it will be 90- or 120-days past due. Regardless of what the reason for non-payment may be, the customer will find it easy to overlook a debt that isn’t being pursued.
Using a demand letter as part of your ongoing process puts a stop to all of that. The letter will make it clear that payment must be made to avoid collections, and that payment is expected within ten days. Instead of allowing the account to just slide along as the months go by, your customer will be forced to confront the issue and determine a course of action. Whether that is paying the amount in full or contacting your office to work out a payment plan, you’ll be in a better position than if you heard nothing at all on the account.
Contact Us Today for More Information
At the Furniture Manufacturers Credit Association, we aim to provide ongoing value to professionals in this industry. Our free Ten-Day Final Demand letter is just one of many ways we serve our members. If you have not yet joined our association, please feel free to reach out today for more information. Thank you for visiting FMCA.
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