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.

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