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5 A Credit and Collection Letter

This document discusses various types of credit and strategies for collecting on debts. It outlines five classes of credit: mercantile, retail, bank, investment, and public credit. It also describes the four C's of evaluating credit risks: character, capital, capacity, and condition. Regarding debt collection, it details a five-step system: notification, reminder, appeal, action, and final/ultimatum notice. Different appeal strategies are discussed, and examples of different types of collection letters are provided.

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Ej Aguilar
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101 views

5 A Credit and Collection Letter

This document discusses various types of credit and strategies for collecting on debts. It outlines five classes of credit: mercantile, retail, bank, investment, and public credit. It also describes the four C's of evaluating credit risks: character, capital, capacity, and condition. Regarding debt collection, it details a five-step system: notification, reminder, appeal, action, and final/ultimatum notice. Different appeal strategies are discussed, and examples of different types of collection letters are provided.

Uploaded by

Ej Aguilar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CREDIT AND COLLECTION

LETTERS
Classes of Credit
• Mercantile or wholesale credit
• Retail credit
• Bank credit
• Investment credit
• Public credit
Mercantile or wholesale credit

• is one which a firm extends to


another when goods are sold for
the purpose of resale.
Retail credit

• is one which a merchant extends


to an individual or family when he
sells good to them for
consumption.
Bank credit

• is one which has to do with the


issuing or lending of money.
Investment credit
• is that credit which provides capital for the
purchase of land, buildings, machinery and other
equipment, money for which is usually not
supplied by commercial banks, but by the funds
of the owners of the businesses or outsiders.
Public credit
• is one which a nation, a state, a city, or a
municipality uses in financing the costs of
government, public welfare, public works, etc.
The Four C’s of Credit
• Character
• Capital
• Capacity
• Condition
Character
• business firms will seek satisfactory answers to these questions:
• What is the customer’s personal and financial standing in his
community?
• Is he honest, industrious, and sober?
• Are his personal and business habits good, that is, clean, properly
conservative yet making for progress?
Capital
• the amount of his total capital investment;
• its condition at present;
• the total amount of his operating expenses over a definite
period of time;
• and other means.
Capacity
• what is his age, the state of his health, his habits, training,
etc.?
• How long has his business been running and with what
degree of success?
• Is he making good or running behind?
Condition
• Can he master the some external and internal conditions?
• Does he recognize the changing order of things?
Classes of Debtor
• A good risk
• A fair risk
• A poor risk
A good risk
• is an individual that has ample capital, is
doing a good business, and is in the habit of
paying promptly.
A fair risk
• is fairly satisfactory in all his capital, business ,
and habit of paying.
A poor risk
• has just enough capital to make him
acceptable as a credit risks, his business
outlook is of very promising, and his payments
are frequently slow.
The Collection System
• Notification
• Reminder
• Appeal
• Action
• Final/Ultimatum
1. Notification
• this is a formal, impersonal notice, printed,
mimeographed, typed, even engraved. It is not
a personal letter. Its tone is mild and casual.
2. Reminder
• This is a kind of elaborate notification calling attention to the
fact that it is not the first message the customer had received.
It is still mild in tone and carries a tactful implication that the
customer has perhaps carelessly overlooked previous
messages.
3. Appeal
• Appeal to sympathy – is the weakest
and the least effective of all the
appeals, and probably the most
frequently misused. Its purpose is to
is to make the customer feel that he
should pay the house which is
carrying his amount is suffering
financial distress through his
delinquency.
• Appeal to self-interest - the
appeal shows the customer how
he will benefit from prompt
payment of his account. He is
persuaded that it will be to his
personal advantage to pay now.
• Appeal to fair-play - the most
widely used, specifically to
business men. It seeks to stir the
debtor to action by stressing his
own belief in the square deal
business.
• Appeal to pride- emphasizes the
importance of a good credit rating
and of a good business standing.
Its direct personal effect
impresses the responsible
businessman strongly because he
is sensitive in such matters.
• Appeal to honor- implies the
existence of contract, either
actual or implied. When a person
charges something, he virtually
promises to pay for it in
accordance with the terms set
forth by the company.
• Appeal to humor- the collection letter which
can produce smile on the debtor’s can
produce also a remittance.
4. Action
• if notifications, reminders, and personal
appeals fail to bring either a remittance or an
explanation.
5. Final/Ultimatum
• to hand the account over to a collection
agency which takes up the system at the point
where the business house left off.
Examples
of
Collection Letters
Notification
Reminder
Inquiry
Urgent Notice/ Urgency
Final Notice/Ultimatum

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