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Collections Best Practices
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invoice so that the collections person can verify that the correct invoice is about
to be transmitted. Next, both the invoice text and the information that goes on the
cover letter must be converted to a digital image that can be transmitted by fax.
After that, the images are transmitted to a server that is a stand-alone fax trans-
mission device. The server will repeatedly fax out the images to the recipient for
a fixed number of attempts. If the transmission is not successful, the fax server
will notify the sender via an e-mail message (which requires a preexisting e-mail
system); conversely, it should also send a message indicating a successful trans-
mission.
Obviously, it is a difficult task to combine the accounting database with fax
server and an e-mail system and expect it all to work properly at all times. Com-
mon problems are that information will not be successfully transmitted between
the various components of the system, resulting in no fax transmission, or that the
e-mail notification system does not work, resulting in no messages to the collec-
tions staff, who have no idea if their faxes are being sent or not. Consequently,
most companies with small collections staff do not deem it worth the effort to
attempt such an installation. Only the largest corporations, with correspondingly
large collections staffs, attempt to install this best practice.
Cost: Installation time:

7–12 ISSUE DUNNING LETTERS AUTOMATICALLY

Some companies have so many small accounts to collect that they cannot possi-
bly take the time to call all of them to resolve payment disputes. This is an espe-
cially common problem for very small accounts receivable, where the cost of a
contact call may exceed the amount of revenue outstanding. In other cases, there
is some difficulty in contacting customers by phone, usually because all collec-
tion calls are automatically routed to the voice mail of the accounts payable
departments. In these cases, a different form of communication is needed.
The best way to contact either unresponsive customers or accounts with very
small overdue balances is the dunning letter. This is a letter that lists the overdue
amount, the invoice number, and date, and requests payment. There are normally
several degrees of severity in the tone of the dunning letter; the initial one has a
respectful tone, assuming that there has been some mistake resulting in nonpay-
ment. There is a gradual increase in severity. The final letter is the most threaten-
ing and usually requires immediate payment within a specific number of days or
else the account will be turned over to a collection agency, the customer will be
converted to cash-on-delivery for all future sales, or some similar dire warning.
As it is impossible to craft a separate dunning letter for every customer situation
(given the cost of doing so), a collections department must create a standard set
of dunning letters that can be used for all customers. Though an informal way of
communicating, a form letter still gets the point across to the customer. There is