We speak to a lot of service companies who, after months of back-and-forth with their client, come to the realization that they simply aren’t going to get paid for their work. What do you do when faced with that type of situation? If you had to get one thing right before you handed an aging account receivable off to collections, it would be the Final Notice.
What is the final notice?
The final notice is intended to be the last communication between you and your client regarding the amount past due. When you get here, the assumption is that you’ve already exhausted all of the internal options in your receivables department. If you haven’t yet, read here. The point of the final notice is to let the delinquent client know you are no longer going to work with them to resolve payment as the account is being forwarded to a collections company. It is your last formal communication, and in many cases, signifies that the business relationship is finished.
The ultimate goal of the final notice is to get payment. The way it is written can make the difference for a customer agreeing to pay, resolving the balance due, and potentially keeping them as a client. A poorly handled Final Notice can cause you to be completely ignored. In the latter case, the bottom line impact to your company has a ripple effect when you consider not only the account itself but also revenue from referrals that are now unlikely to happen.
Can I see an example final notice?
Yes! Here you go:
"Dear Client,
It has come to my attention that you have not complied with our formal requests for payment. Please see the attached invoices that document the sum of your outstanding balance past due. On January 1, 2015 you approached our company for [product or service provided]. The service was completed expeditiously and in accordance with our [agreement or contract]. The total balance due is $2,500. It is very important that we hear from you regarding your payment intentions on this account.
We will delay any action for 10 business days, until [22 June 2015; Note: assuming this is 10 business days from the date of the letter] to allow you the opportunity to make payment arrangements. Be advised, the next step is to place your account with a collections agency. Please contact the undersigned no later than 22 June, 2015 to let us know of your intentions. Pursuant to the credit agreement you signed, we will be adding [30%] to the total balance to cover the cost of collections once we place your account with National Service Bureau.
Respectfully,
[Undersigned]
[Phone Number]
[Email]"
Other Considerations
Here are three to think about:
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Include verbiage in all of your contracts that allows you to increase the balance due to cover the cost of collections in the event of non-payment. Here is an example:
“In the event that [CLIENT’S] account becomes past due and is referred by [SERVICE PROVIDER] to an outside collection agency or attorney, [CLIENT] will be responsible for the cost of collection services at the rate of 20% of the balance due, along with reasonable attorney fees and court costs incurred by [SERVICE PROVIDER].”
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Consider printing out the Final Notice email and sending a hard-copy of it via overnight mail “return receipt” so you can legally verify receipt from the client. This costs between $5 and $10 at the United States Postal Office. A few days after sending you will receive a green receipt in the mail that is useful for legal verification of Final Notice delivery.
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Invoices. In many situations, you may only be able to collect on the amount that has been formally invoiced. Make sure you aren’t forgetting to include legitimate payments due in your invoicing, and that you have an accurate record of invoices sent to the client.
Conclusion
Unfortunately, once you get to the point that you are contacting a collections agency, the time for second guessing and/or rewriting contracts is over. That happened months ago and you’re left with what you have. Learn from the situation and improve the deficiencies in your contract and your invoice procedures for next time. Take care of the things you can control - drafting a well thought-out final notice.
