When you allow customers to buy on credit, you send them invoices that they are supposed to pay within a set time period, typically 30 to 60 days. However, in many cases vendors are providing “90 days same as cash” payment terms, or extended billing terms of 6 to 12 months.In all of these cases it is good business to remind your customers of their obligation, or provide an inducement (e.g., discount) to pay their bill before it is due. You can do this with a letter or series of letters called “billing letters.”

A billing letter is not the same thing as a collection letter. Collection letters are sent only when the account becomes past due or delinquent. A “delinquent” account is a customer who has not paid one or more invoices within the credit terms you have extended.The purpose of the billing letter is to persuade your customers to pay now instead of later for two key reasons: (1) to prevent delinquencies, and (2) to get your money sooner and improve cash flow.

Billing letters provide an opportunity to strengthen the bond with your customer by explaining how you expect the credit relationship to be handled. The letter should create a dialogue and build additional goodwill with the reader, since you’re trying to coax them into parting with their money sooner than they expected.

A billing letter is always sent before payment is due and is routinely sent out with the initial invoice.