Components of AR Collections Letter

By Annapoorna

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Updated on: Jan 18th, 2022

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3 min read

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Communication plays an important role in the debt collection and recovery process. It is common practice for the creditor to make the debtor aware that payments are due. This is done with the help of an accounts receivable collection letter.

Important elements of the AR collection letter

The essential components of the accounts receivable collection letter include the following-

  • Professionalism in language and tone

The language contained in the accounts receivable collection letter must be clear and crisp. The information contained should include details such as the amount due, the due date, the method of payment, etc. Avoid using jargon to help convey the message with ease. This increases the chances of recovering the dues early. The tone used in the letter must be stern but not rude or disrespectful. The letter is written mainly to help the recipient understand the seriousness of the situation.

  • Formal letterhead

Using a professional letterhead tells the debtor that you mean business. This also helps set the tone for every future interaction with that debtor. The debtor is likely to take the matter more seriously when this level of professionalism is maintained.

  • Adequate and accurate information

While maintaining clarity and brevity in communication, it is also important that the debtor is provided with all the necessary information about the outstanding dues.

The following details will form part of the letter-

  • Invoice number and date 
  • Details of goods or services availed
  • Due date for payment
  • Terms of payment
  • Amount due
  • Number of days after the due date
  • Expectations regarding fulfilment of dues

The debtor is informed of the date the dues are expected to be cleared. A specific date must be used instead of “in the next 10 business days”. When a specific date is not used, there will tend to miscount the actual due date. Using a specific date leaves no room for confusion.

  • Follow-up instructions

The customer’s accounts payable department (the debtor) is likely to speed up the payment process if clear and specific instructions are provided regarding payment. The instructions shall be given as follows based on the mode of payment –

  • In the case of online payments, the specific payment gateway.
  • Account details for payment by cheque
  • The contact number of the creditor for clarifications
  • Incentives and discounts

You have to give a reason to the debtor to prioritise your payment by offering him an incentive. It may be a certain percentage of discount for early payment or the introduction of interest charges for further delay in the payment of the outstanding dues. However, careful thought must be put in before introducing these incentives. One must consider the potential impact this incentive will have on the overall business and then proceed to incentivise the debtor. 

Template of the AR collection letter

24th December 2020

Dear Mr ABC,

Subject: Unpaid dues

Our records show that your account is 10 days past due. A detailed statement concerning the same has been sent to you for reference. However, if you have not received the statement so far, we have summarised the status of your account and the related invoices below-

  • Invoice number: XZ-200
  • Invoice date: 14-11-2020
  • Details of goods or services availed: XYZ Trousers (25 nos)
  • Due date for payment: 14-12-2020
  • Amount due: Rs.2,50,000
  • Terms of payment: Payment to be made within 30 days after the purchase date
  • Number of days past due date: 10

Kindly settle these dues by the 12th of January, 2021.
Any queries regarding this invoice may be addressed to pqrltd@gmail.com. You may also contact me on the following number 0824- 2235764.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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