Credit / Invoice / Payment / Demand Letter

A. Credit


Granting of credit means allowing for the delivery of goods or performance of services without first receiving payment. Credit is very common in both the consumer and business context, and would induce sales by allowing the customer to buy goods and services without first having the available sales.


It is essential for a company to ensure that the customer has the ability to repay for the goods and services rendered. This is usually done by a credit check.  The below are some common credit documents:


Request for Credit  - Customer apply or request for credit.

Credit Reference - Seller checking with credit agency / other vendors on credit history.

Credit Acceptance - Approval of credit to customers specifying the amount granted with a welcome message.

Credit Refusal - Refusing credit in a positive way, and suggest that they reapply in the future.


B. Invoice and Payment


An invoice is a commercial document issued by the seller to the buyer in connection with a sales transaction, indicating the product, quantity and agreed price of the product or service provided by the seller to the buyer.

Payment terms are usually written on the invoice. These terms may stipulate that the buyer has the maximum number of days to pay and sometimes offers a discount if paid before the due date. The buyer then makes the payment for the products or services listed on the invoice.


C. Demand Letter


The granting of credit may always result in the lapse of payments by a few customers, regardless of how carefully the credit check had been done.  Writing a demand letter is a delicate matter since your aim is to "demand" payment from the customer without offending the customer or damaging the goodwill (at least for the first letter). It is important to be persuasive instead of sounding demanding. Yet one will need to be firm, tactful and polite at the same time, which is a difficult art to master. 


The way to do so is to be customer-oriented when writing the first demand letter. Prior to doing so one would generally start with sending an additional outstanding invoice stating clearly "Past Due", followed by a phone call to remind the customer. If that fails, one would start with a mild reminder that there has been an oversight in payment, then the tone gradually intensifies with the second letter, with a final letter reminder threatening to take legal action or refer to a collection agency if they do not pay. In all cases, the payment demand should have the following elements:

  1. the overdue amount;
  2. the original due date and how long it has been past due;
  3. ask for immediate payment or other options for the customer to take (e.g. installments). 

Below are some examples we have on DocPro:


First Payment Reminder for Goods and Services - Friendly reminder that the payment is past due.
Second Payment Reminder for Goods and Services - A more forceful reminder demanding the overdue amount be repaid immediately. 
Final Payment Reminder for Goods and Services - Letter before action threatening legal action or past to collection agency.