Writing a past due letter: samples for pro­fes­sion­al letters re­quest­ing payment

Out­stand­ing claims – also known as out­stand­ing debts – threaten the solvency of a company. The more unpaid customer accounts you have, the greater the liquidity problem. High rates of out­stand­ing debts not only lead to sig­nif­i­cant interest losses, but if payments end up having to be com­pen­sat­ed with loans, ad­di­tion­al costs will be incurred. Companies therefore endeavor to collect out­stand­ing payments for services rendered in a timely manner. This is usually done through an out of court dunning process, in which customers or business partners are informed of their default through a series of reminders. If out-of-court measures do not lead to the desired result, companies have the pos­si­bil­i­ty of asserting claims for payment through a court order.

In this article, we will show you how to demand a set­tle­ment for out­stand­ing bills in a pro­fes­sion­al manner. Correct procedure is of central im­por­tance during a dunning process. As a rule, the reminder letter is a pre­req­ui­site for further legal steps. In addition, judicial disputes can often be avoided by appearing com­mand­ing and stressing the im­por­tance of payment through­out the dunning procedure.

The aim of the reminder letter as a tool for managing re­ceiv­ables is to reduce the number of out­stand­ing debts, and to avoid the loss of re­ceiv­ables. At the same time, a pro­fes­sion­al dunning system is also geared towards retaining customers. This should be reflected in the tonality, as well as the number of es­ca­la­tion levels, which we will outline here to demon­strate business oblig­a­tions to partners involved.

The legal basis for out-of-court past due notices by companies, lawyers, and credit bureaus are found in the Fair Credit Reporting Act (FCRA) and the Fair Credit Billing Act (FCBA). The Federal Trade Com­mis­sion (FTC) oversees the im­ple­men­ta­tion of these reg­u­la­tions. Court order for payment is regulated dif­fer­ent­ly depending on what state you are in – disputes are usually settled at state level through general ju­ris­dic­tion state and county courts. However, federal district and regional courts retain exclusive ju­ris­dic­tion over cases con­sid­ered to be an aspect of federal law or when the issue concerns parties located in different states.

Central legal concepts within the framework of the dunning system are maturity and default.

The pre­req­ui­site for a dunning procedure is a creditor/debtor re­la­tion­ship, pursuant to state or federal laws, which allow a creditor to demand payment from his debtor for goods or services rendered. This type of debt re­la­tion­ship usually comes about through a contract (e.g. a purchase agreement). The following applies in principle: Missed payments can only be claimed through the dunning system if a claim exists and it can be proven that the claim is due:

If the debtor fails to provide the con­trac­tu­al­ly agreed upon service until the due date (e.g. 14 days after delivery), then the creditor has the right to demand it.

In the above example, the debtor au­to­mat­i­cal­ly falls into arrears once the due date has arrived. Reaching this point is a pre­req­ui­site for a creditor to assert claims against the debtor on the basis of due payment.

If a debtor is in default of payment, the creditor has a claim for damages (in the form of dunning charges) and interest. A pre­req­ui­site for this are cir­cum­stances which may cause delay. This is the case with non-payment, despite the due date and the reminder.

In the above example, the debtor Max Musterman au­to­mat­i­cal­ly falls into arrears because the terms of payment are specif­i­cal­ly stated with a calendar date (14 days after delivery). It is not necessary for the hardware store to issue an ad­di­tion­al reminder, as Max Musterman already has the time in­for­ma­tion in his pur­chas­ing agreement, however, it is best practise to issue a past due no­ti­fi­ca­tion letter the day after the due date, 60 days past due date and 90 days past due date.

The legal timeframe within an invoice is required to be paid at the dis­cre­tion of the contract between the debtor and the creditor. Should the debtor fail to pay by the specific date set out in the contract, the creditor may then begin the dunning procedure either them­selves, or through a debt col­lec­tion agency.

There is no federal law or legal re­quire­ment from the US federal gov­ern­ment, or outlined in the Fair Debt Col­lec­tion Act, that defines exactly how a legal reminder, or past due letter should be for­mu­lat­ed. In fact, the debt collector can also contact the person in written form, verbally, or through con­clu­sive behavior. However, the United States Code does reference the in­for­ma­tion a creditor must provide in their com­mu­ni­ca­tion with the debtor:

Due to its strong character, the past due letter is the most popular form of cor­re­spon­dence.

The following then applies: A past due letter must be ex­plic­it­ly titled as such. Ac­cord­ing­ly, even a par­tic­u­lar­ly polite or humorous demand for payment fulfills the function of the reminder, provided it satisfies the above re­quire­ments. A polite pro­fes­sion­al tone is always rec­om­mend­ed, as you do not want to tarnish your own rep­u­ta­tion as a business through impolite or rude cor­re­spon­dence. 

A copy of the invoice may be enclosed with a reminder. In practice, open invoices are sometimes listed directly in the letter of formal notice. This is par­tic­u­lar­ly advisable if there is the pos­si­bil­i­ty that the debtor has misplaced the invoice, or possibly never received it. A reminder of the payment terms and even a threat of legal con­se­quences may be required to increase pressure on the debtors.

In the USA, it is standard practice to send three reminders (past due letters) in com­mer­cial debt cases. There are slight dif­fer­ences between the first, second, and third letters. Generally, this dunning procedure is applied even if the debtor has already fallen into arrears, and could tech­ni­cal­ly be brought to court im­me­di­ate­ly. The reason for this is customer retention.

It is not always the case that out­stand­ing payments are due to the un­will­ing­ness of the debtor to pay. In some cases, re­cip­i­ents have forgotten about the debt and settle the out­stand­ing amounts. In other cases, the invoice may not have been received by the recipient of the invoice. In order to avoid un­nec­es­sary annoyance by de­fault­ing clients, it is advisable to first remind them of their oblig­a­tion to pay. 

You may refer to the IONOS templates when creating reminders and due payment letters.

Use pro­fes­sion­al past due letter templates when dealing with de­fault­ing clients. IONOS provides a pre-for­mu­lat­ed sample letter for the first, second and third reminders as a Word file, or in Excel format.

Depending on the severity of the delay and the debt incurred, stronger language may be rec­om­mend­ed when wording your letter before action.

If the out-of-court dunning procedure does not lead to the desired result, a creditor can obtain legal as­sis­tance by taking the case to the small claims court (if the amount is under the state limit), obtaining legal services about how to proceed if the sum is above the state limit, or selling the debt on to a debt col­lec­tion agency.

Click here for important legal dis­claimers.