Collecting by letter

Front matter

f\ Cornell University M Library

J ^.-oti^wrtsisiiaffir:

WITH THE ASSISTAMCt OF J500 EXPERTS

Contents

Collecting By Letter.

Volume I.

Chapter. Page.

Introduction

Through the entire fabric of modern business are woven the endless threads of credit and collections. Every business is founded on credit and supported by its collections. In direct proportion to the intelligence and understanding with which these two important features are dealt a business is successful.

Certain principles and rules of action have grown out of the long practice of these important phases of trade, but we may claim for neither that it is an exact science. There is no dependable literature on either subject generally available for the average business man, although the Course on Scientific Collections published by The American Collection Service of Detroit covers the entire field exhaustively. This course was designed to train men in the collection agency field, and its distribution has been largely confined to men in this profession. This course may be secured by those interested in possessing a thorough treatment of this important subject, however, and the wealth of its collection instruction will be found highly profitable to any business man.

The purpose of the present volumes is to afford an insight into the principles underlying collections by letter. From time to time various so-called books of collection letters have been jjublished, but aside from containing an unrelated mass of commonplace form letters of doubtful value, few have contained the slightest degree of merit, or commended themselves to the intelligence of the thoughtful or aggressive business man.

The object of this book is a discussion of the subject of collections from a new angle, that of human motives. The average business man views the accounts on his books as falling into Mvo general classifications, and neither view permits the highest degree of efficiency in handling this difficult subject. One view is that of the establishment which considers its accounts as unquestioned assets, as stable as its stock on hand or its cash in bank. The other view is that of the suspicious merchant who looks on his debtors as highwaymen or thieves, to be hounded unmercifully and disciplined accordingly.

The prevailing attitude of mind regarding collections has been entirely too one-sided an affair. The average merchant has failed to consider the problem from its human angle, and has concerned himself with practically no analysis of the mental attitude of the debtor. As a result, many an account that never should have been allowed to become even doubtful has easily developed into the desperate class, from which it has been but a short step to the collection graveyard.

Any assistance that will permit the merchant to understand principles will make easy their application to everyday business needs. This result is sought to be accomplished through examples, rather than through tiresome theory. Hundreds of letters, directly applicable to practically all contingencies of ordinary collection correspondence, will be found carefully arranged in logical sequence, but their most useful purpose is not that of supplying a needed form, but rather a helpful suggestion for the preparation of any special appeal.

In addition to a careful survey of the motives underlying payment of accounts, and the best methods of appealing through them, several chapters have been devoted to an elementary discussion of the most imintroduction 7

portant mental phases of human action. The closing chapters of the book present an unusual series of tried collection forms. The latter are selected contributions from some 3,500 sources, the skilled representatives of the Co-operative Bureau of The American Collection Service having presented a great number of these successful and result-getting forms. The thanks of the author for the unselfish co-operation of these progressive collection men is extended here, though individual credit for each contribution will be found in its proper place.

The material included in this work is divided into two volumes, that a logical division may be made between that devoted to theory and that outlining actual practice. In the .first volume have been included a number of chapters on collection psychology. The collection of any account, aside from legal recoveries, being a strictly mental result, makes an understanding of the most important phases of mental action not only desirable, but also necessary. The treatment of the psychology of collections is necessarily brief. It i<? hoped that an interest in this exceedingly engrossing subject may be suggested to the reader in a manner to promote a more extensive study of psychology. James' Psychology, the Briefer Course, will be found very easy to understand, and the author's book. Analytical Advertising, contains an exposition of psychology that will be found directly applicable to the needs of any business man.

A portion of the material included in the present volume is taken from articles that have previously appeared in Business Service, The Collection Magazine. Of these selections most have been written by the author. The series of chapters on Collection Defenses were written by him in conjunction with Mr. H. K.

Legg and the chapter on Fraudulent Conveyances was contributed by Mr. Benjamin Levering, of the Chicago Bar. The chapter on the Psychology of Collecting by Personal Demand was written by William Rosenthal Advertising Manager of Business Service Corporation, who has also rendered careful service in arranging and selecting the mass of valuable letters and forms submitted from many quarters.

A number of short articles on definite collection procedure are reproduced in this volume, as their direct value may appeal to a large number of business men daily confronted by problems whose solutions are reflected by the points of several.

Retail Accounts by Mail 9

Chapter I, Collection of Retail Accounts by Mail

Diplomacy, judgment and business intelligence are the biggest factors in successful retail collections by mail. The use of these qualities will enable the merchant to collect his outstanding accounts and do it in such a way as to retain the good-will and trade of his patrons, where the retention of such trade is profitable.

The importance of prompt settlements and keeping accounts in good condition cannot be overestimated, as that detail actually determines the business life of the retailer. We are safe in saying that more retail business failures have resulted from lack of proper attention to collections than from any other reason.

Keeping accounts in good condition means a great deal more than the actual money concerned. It involves the customers' regular trade. It is a well-known fact that when a customer is in arrears on his accounts he will hesitate to come into the merchant's store to purchase more goods. The cordial feeling between the merchant or his sales force and the delinquent is strained. Because of this he will naturally prefer to go to some other store where he will endeavor to open a new account or make his purchases for cash. In this way, the first merchant loses the immediate use of the money, very likely the account itself and the patronage.

To show how this works out, we will cite an actual occurrence which might well be within the experience of any retailer. A haberdasher permitted a patron to run up a considerable account. For a long time payments were made promptly, but one month he noticed that the account was not checked off as usual. He gave the matter little more than casual attention and let it run along. During this time there was no sign of the purchaser. Statements were sent out regularly but with no response. One day while in another shopping district, the merchant saw his former customer come out of a store with several purchases in his arms. This decided him. He wrote a polite letter to the debtor, requesting him to come into the store for a little talk in connection with his account. He did so several days later. The matter was put up to him in a friendly manner, the haberdasher expressing his surprise at not having seen him for such a long time. The debtor replied that he had not been in because of inability to pay his account and that he had been afraid of being turned down on further purchases. The matter was adjusted by an agreement for weekly payments. In this way the merchant received his money and kept the debtor's trade.

With retail debtors it is not always possible to- make precise or definite divisions. In a general way, however, they may be classified somewhat in the following manner: Wage-earners, salaried or business people, and dishonest debtors. Wage-earners are good for their purchases as long as they are employed. Their incomes cease with lack of employment, and the absence of property or other assets means that there is little chance of collecting accounts against them until they again secure employment. It is necessary to give these accounts the closest attention. The credit man should know as closely as possible the days on which they are paid, and if they do not settle up regularly, he should get busy. These accounts should not be allowed

Retail Accounts by Mail U

to grow too large, and if there is any tendency toward delinquency they should be stopped.

With such customers, it is advisable to have arrangements for weekly, semi-monthly or monthly settlements, depending on the class of retail business. Statements should be sent promptly in accordance with the arrangement for settlement, and should be followed up quickly if payments are not kept up regularly. Their wages are paid weekly or semi-monthly, and collection letters should be mailed so as to be in their hands on regular pay-days, when they have the money and are best able to pay accounts. If it is known that debtors in this class are paid weekly, the interval between letters may be as short as one week, so as to coincide with pay-days.

The big majority of customers who make up the credit list of the average retail business are of the class commonly considered as well-to-do, are either established in business or hold good salaried positions, and have fair incomes. They are termed as reliable. With such a class there should be more elasticity of treatment. It is their business which affords the merchant his real profit, and he should be very diplomatic in his treatment of them. Statements should be sent on the first of each month, with a notation requesting payment on a certain date. If not paid within thirty days, another should be sent with an accompanying note. The ground should be taken that it has in all probability been overlooked. If no reply is received, a third and fourth letter should follow, each increasing in urgency. The fourth should ask particularly that the debtor call at the office, intimating that further avoidance will result in placing the account in the hands of an attorney or collection agency. In most cases he will call and it will be found that neglect of payment is due to temporary shortage, in which case the matter can be readily adjusted by a partial payment plan.

Merchants are fond of speaking of absolutely good credit patrons, and are inclined to place too many of their customers in this list. They allow them all sorts of privileges and extensions and cater to them in every possible manner. This is a big mistake, as it will be found that the greatest proportion of credit losses arise from this class of so-called absolutely good customers. Even the very best customers should not be considered as better than ordinarily reliable. It is much better to lose the trade of a few who seek extraordinary credit than to take the chance of pocketing a big loss by being too liberal. The letter treatment of those who are classed as absolutely good should be identical with that accorded the reliable class.

Then there are the dishonest customers who run up a bill with one concern and move to another neighborhood, or another town, open up a new account and carry the same practice through continually. The only protection the merchant has against this class is to be very strict in establishing requirements for the opening of accounts, and to secure good references. Then again, such debtors become listed eventually on the "dead-beat" lists of local retail organizations. In some localities these organizations are doing good work, but in many cases they fail of their primary purpose through inefficient management. Taking all things into consideration, the merchant must depend almost wholly upon his own activities to escape credit losses.

The letters used by the collection department of a retail house may be to a great extent of a form nature, with a personal touch here and there. The writer should formulate them by putting himself as much as

Retail Accounts by Mail 13

possible in the position of the debtor, writing to the debtor from his own point of view. He should be shown the accommodating attitude of the merchant in opening the account, and that the same spirit will be continued in the matter of settlement, if the debtor will only do his part ; that his patronage is deeply appreciated and a continuance hoped for. In final letters, point out the additional trouble and expense that will be caused him should it become necessary to sue, and that it will be difficult for him to obtain credit elsewhere. Replies to letters from debtors should always be strictly personal.

The big point of each and every letter form or special should be that the account must be paid; that there is absolutely no way out of it. There must be no negative suggestion that it may not be paid. The firm insistence upon payment must be held before the debtor always, and he must be kept in the mental attitude that recognizes no other course. The letter which lacks in firmness cannot be expected to result in payment, as it does not contain the force necessary to bring action.

Psychological conditions have a more important bearing on retail collections than on any other class, and their influence is more clearly seen. The mental processes are simple, free from complications and more easily traced than in mercantile collections. The reason for this is quite apparent. In mercantile collections the dealings are between organization and organization, and while it is desirable to inject the personal element into these transactions, it is not always possible. With retail collections, it is the merchant or credit man dealing with one person. In thus dealing with one person, it is possible to consider the personal element and therefore the mental attitude. Once the mental attitude of a debtor is ascertained, all that is necessary is to formulate the proper collection effort in order to secure the money.

These two letters are used by a retail merchant's collection department. Particular attention is directed to the mention of affiliation with the American Collection Service. On account of the prominence of the latter organization in collection matters, such a point is bound to be of great weight in forcing prompt collections.

CREDIT DEPARTMENT

30-Day Notice Dear Sir:

We have recently become afiiliated with The American Collection Service, and it is our desire to report all of our patrons in good standing.

This service is for the scientific protection of business men doing credit business.

We would regret very much to report anyone as not paying. Respectfully,

We regret having to refer to the matter of

your account again. We are forced to keep our

■ debtors' accounts in good shape, so that we can

discount our own bills in order to do business

successfully in this competitive age.

We hesitate to place this bill in the hands of the collection agency, for in such instance we both lose. Respectfully,

Submitted by B. H. Gholson, Denver, Colo.

Chapter II. How to Make Mercantile Collections by Mail

Many business organizations underestimate the importance of the collection department. It should be regarded as one of the biggest wheels of the machine, as it is the factor which ultimately decides the profit or loss of doing business. With the manufacturer, for instance, there are the producing, selling and collection departments, and no one of the three should be subordinated to the others in point of personnel, equipment or attention to details. Just as the producing department is responsible for quality, quantity and cost of product so that it can be marketed at a profit, and the selling department for the judicious handling of the goods, so must the collection force look after the returns which are essential to the profit. The same principle holds true with every mercantile, wholesaling and jobbing organization. The importance of the collection department and its operation require the closest attention to details at all times.

By far the greatest portion of accounts can and should be collected by mail. That this work may produce the best results, however, it is necessary that it be given the same intelligent attention that is exercised in the other departments. The subject must be studied thoroughly. There must be no attempt to lay out an iron-clad system that will govern inflexibly all cases which may arise, making no exceptions for conditions in special matters. It is not possible to handle all customers alike, and before the method is determined, the collection head should ascertain as closely as possible the conditions under which the merchant is doing business.

Many credit men make a great mistake in the attitude they assume in writing a collection letter. They assume the position of the relentless money-getter; showing plainly that they have no interest in the debtor outside of the dollars and cents which he owes the house. Convince the customer that you have an interest in him, in his business and in his personal and business welfare ; that you are trying to be of assistance to him in the settlement of his obligations, that you want to aid him in keeping his affairs on a firm basis. Work in the idea that his past business is appreciated and that future business relations of an extended nature are considered as a matter of course. But point out by inference that the basis of accomplishing these objects is the payment of the account in question.

In all business letter writing throw yourself into the place of the other fellow. In other words, if you are trying to sell goods, put yourself in the place of the prospective purchaser and look at the article from his point of view. In this way you get the arguments for desirability of purchase. Collecting by letter should be treated in the same manner. Put yourself in the debtor's place, showing him from his own point of view why the account should be settled ; that it will be better for his business and for the maintenance of his credit standing. If the condition of general business or of the customer's business is such that a reasonable extension should be permitted, do not hesitate to include a suggestion on that basis, or that the payment of a certain amount will enable you to grant an extension on the balance. Once the customer behaves that the house sympathizes with him in his financial difficulties, not alone because of self-interest but from a sincere desire to help him, the greatest obstacle is overcome. Under real human treatment most debtors will be proud of doing their part.

In all transactions with customers, the credit man must not overlook the fact that it is up to him, in a great degree, to handle them in such a manner as to maintain the business relationship on a satisfactory basis. He must conserve the future trade of the debtor. Of course, a certain number of customers will prove such absolutely poor pay, and therefore so unprofitable, that their trade is not desired under any conditions. This can be determined by ordinary business judgment. But with the great majority it is not only desirable but necessary to retain their custom. So it is essentially the duty of the credit man to collect accounts promptly, and do it in such a manner as to keep the good-will and custom of the debtor.

Be dignified always. Never send a letter written in a tone that will indicate you are asking payment as a favor. The house has an absolute right to the money which the customer owes it. Never stoop to petty remarks regarding the debtor's methods or his objects. Such things merely detract from the credit man's personal standing with the debtor, and with influence and prestige impaired his efficiency is reduced greatly. This means less chance of satisfactory settlement. The main essential of every collection letter must be firmness, absolute insistence that the account must be taken care of, and that there is no alternative possible to the debtor. In every letter, special or form, the one central idea upon which everything else depends, is the fact that payment must be made. That should always be held before the debtor, that he may have absolutely no excuse to defer or overlook settlement.

Form letters are valuable in starting the series, but following letters should* be governed by conditions vvrhich develop. All should contain as much of the personal element as may be found practicable. The wellequipped credit man should know every possible detail of the customer's business and circumstances. In writing his collection letters he should utilize this information to make his points strike home. The remarks that are based on intimate knowledge will always have more effect than the general appeals of the strictly form letter.

There is only one class, the dishonest customer or "dead-beat" who may be treated with a rigid system. Once his nature is determined, the treatment is quite simple and dan be safely and surely applied in every case. There is no necessity for great study or effort, as it resolves itself into the demand for immediate cash. If he does not put up the cash he does not get the goods. It is much better to let him go than to take a chance on the wrong side of the profit and loss account. In handling all other customers, however, tact and diplomacy are required, and in order to apply these qualities intelligently the credit man must possess the knowledge of general and individual conditions secured only by thorough study.

The first collection letter to a customer should be little more than a friendly business note, calling his attention to the account, assuming that it has evidently escaped his customary attention. A letter of this nature cannot help but draw good returns in most cases. If it does not bring action, it will be recognized that a more urgent request is required, which should follow after an interval of about ten days. The third letter.

after an additional ten days have elapsed, should be a plain demand for the money, calling for either full or partial payment. The fourth letter should be a notice that if the account is not taken care of within a certain time limit, it will be placed in the hands of an attorney or collection agency. If the writer considers that it will have a good effect, he may include remarks concerning the inadvisability of permitting the account to go to the length where it will have to be collected through harsh means, causing the debtor additional trouble, expense and the inevitable damage to his credit.

Judgment, sympathetic handling and co-operation will accomplish better results than recourse to force methods, such as the agency or attorney must use. It often happens that merchants are forced into bankruptcy by inadvisable proceedings, causing the loss of a portion if not the entire account, when by the use of better judgment the credit man could secure payment by handling the debtor properly through extensions or instalment payments.

Do not neglect the personal element in handling mercantile collections. In the complex developments of business, the error of overlooking the importance of personality often occurs. This should be guarded against. It is the knowledge that a house takes a deep personal interest in the business of the customer, that there is one department, or better still, one man who takes an interest in his business and in his own financial standing and improvement, that creates the soughtfor business loyalty on the part of the customer for the house, makes his good will a thing of permanence and value, maintains his account in good shape and keeps his trade. To illustrate how this works out, the following case will be of interest :

20 Collecting- by Lettef

The proprietor of a New York City hat factory, on instructing a new salesman as to prospects, mentioned a certain Boston merchant who conducted an exclusive men's hat store. Without giving all the facts, he intimated that some years ago this man had purchased large quantities of their goods, but there had been a little difficulty and his entire business had been lost. The new man, keen to do business, called on this merchant. He was received politely, but told in the first words that to show his goods would be a waste of time for both. Asking why, he was given these facts : When the merchant first started in business he bought practically all of his goods from the salesman's factory. He continued to do business with them in a satisfactory manner, discounting the incidents that were bound to arise now and then. One season, a new competitor starting in the same neighborhood, his business fell off badly, he had his stock on his hands and the bills fell due all in a bunch. Notes seemed to come in almost every mail from the credit man, demanding payment and making dire threats. To these he replied that he had not the money and the house would have to wait. Then the credit man stormed in and threatened bankruptcy proceedings. Knowing that he was in a tight fix, and rather than see his business smashed, he secured the consent of his wife to sell a piece of property held in her own name. Being a forced sale, the real estate was disposed of at a sacrifice in value, but it was necessary to save the business. He passed the crisis. He stopped all purchases from that house and transferred his business to a Danbury hatter. When the panic of 1907 made itself felt, he was once more in a serious position on account of the expansion of his business. The manufacturer's position was not so difficult, as he simply cut down production. But it was different with tlie st9cked-up retailer. Bills fell due, as they always will, but there was no money to meet them. A letter was received from the collection head asking why the money was not forthcoming, and he explained the situation. This brought a personal note by first mail assuring the merchant that the manufacturer would allow every reasonable extension, and that he wanted to help him in every possible way. Through his co-operation he weathered the storm and re-established his business on an absolutely firm footing; "They've had all the business I could give them since that time, and they'll keep it, too," concluded the merchant.

Now it must be admitted that some credit men rarely appear to be human beings. Should you be one of these misjudged individuals, appear to be as really human as you are. It is quite possible to be human and still be a good collector.

The following series of four letters is used by the collection department of a distilling concern which does a country-wide business. The first letter, which is very good, containing a dignified business appeal expressed in the right manner, is sent after statements have failed to elicit attention. The second, as will be noted, is shorter and of an urgent nature. The third gives notice of draft on a certain date, and the fourth is written upon the return of the draft unpaid. The entire series is good, and the firm has been using it with very satisfactory results. The letters are written on the regular letter heads, with the following rubberstamped notation: "COLLECTION DEPART- MENT, Record No. . Kindly refer to above

number when you reply."

You undoubtedly have our statements somewhere about your desk, and have neglected sending us your remittance for the last bill of goods we shipped you. But this is not worrying us, as this will sometimes happen with the best of us, especially when you are busy and have other matters to look after.

As your account is now long overdue, we would appreciate it, therefore, if you will kindly return the inclosed bill to be receipted during the next few days. We are right in the midst of our busiest season, and you don't know how these little matters help us out.

Yours truly.

We are inclosing duplicate statement of your unpaid account, which has been due for some time. Will you kindly send us check for this, or give us some idea when we might depend upon your remittance. We virill appreciate an early reply.

Your attention has twice been called to your

unpaid account for $ , but for some reason or

other you do not reply to our letters.

Our terms, as you know, Mr. , are

thirty days, and we can not allow a longer extension unless by special arrangement. May we expect your remittance by return mail?

Should we have no advice from you by the

we will draw on you, and if you have not remitted in the meantime kindly provide for our draft before it arrives, or remit us direct, as you may prefer.

Yours truly.

We drew on you on the through The

for $ , and our draft was returned endorsed

We wrote you about this on the , and are

surprised, under the circumstances, that we have not heard from you at all regarding the matter. The account is not large, and with a concern of your reported resources it is difficult for us to understand why you should cause us this unnecessary attention. We know it is simply being neglected.