If you have a customer with a very long-overdue bill, here is a little known way to collect it: Tell your customer that you plan to write off your tax-deductible loss and report your customer’s gain to the IRS. When you do this, the amount you write off becomes income for the debtor. You must file a 1099A form if the debt is secured, but you may also file on an unsecured debt. Then, send a copy of the 1099A form and the letter shown below to your client and allow them 30 days for payment. In many cases, your worst debts will get settled quickly, because most people don’t want the IRS poking around in their old tax returns.
Here’s what I call “the world’s best collection letter”…
(click here to view downloadable text for this letter)
In 23 years, I used this letter six different times. The results from using this letter were remarkable. I collected from five of the six late payers that I mailed it to, and the total amount collected was over $22,650. Only one late payer continued to do business with me, but I figured I didn’t lose much because they weren’t paying me anyway.
In August of this year, I shared this collection letter with a printer friend named Yvonne. She emailed me this comment about a customer who owed her a lot of money: “Guess what? Thanks to the deadbeat letter, the deadbeat paid within 24 hours of receiving it — the debt was $2000 and over a year old. I am ecstatic!”
I wouldn’t suggest using this letter unless you have pretty much given up hope on a large past-due debt. If you send this letter, you should also realize in advance, that you are probably ending a relationship with this customer. Losing the customer at this point probably isn’t a bad thing anyway, because in most cases when a customer gets seriously past due, they will stop buying printing from you anyway.
One last thing, and I hope you understand this. I always encourage you to use any of the information in Gutenblog in your marketing materials. However, from time to time I’ll share an idea — like this one — that is so good I would highly recommend that you not share it with all of your customers. I share “the world’s best collection letter” with you, but respectfully ask that you not share it with others. Let’s keep this great collection letter idea “in the family.”