What is a collection letter?

The collection letter and its sender

A collection letter is sent out by a collection agency. This company contacts a debtor on behalf of the creditor or in its own name. The collection company's legal position towards the debtor depends on the underlying legal transaction. Some companies dispense with internal receivables management and transfer the collection of one or several accounts to a collection agency which can then adopt various approaches for the creditor. The creditor can grant the collection company power of attorney authorising it to collect outstanding accounts while remaining the owner of the accounts. Moreover, there is the option of debt purchasing - in which case the creditor assigns all rights and obligations to the collection company. This approach is primarily used for accounts not collected in spite of dunning and in case of large-scale receivables that have been written off. The debtor is informed that a collection company has become involved by means of a collection letter. The first assertion of a claim towards a private individual by the collection company must comply with the requirements of section 11a RDG (German Legal Services Act).

The collection letter and its content

First of all, the collection letter informs the debtor of the fact that an outstanding claim has fallen due. Here, the collection agency explains the details of the outstanding receivables and asks the debtor to pay the claimed amount, plus the follow-up costs incurred. According to section 4 sub-section 5 RDGEG (Introductory Act to the Legal Services Act), the collection costs are based on the German Lawyers' Remuneration Act. Under this, the collection costs are capped at the amount that a lawyer might charge for the same work. The amount of the principal claim forms the basis for the calculation.

Collection letter
Next steps after receipt

If you receive a collection letter, you - as the recipient - have several options: You can pay, you can object to the collection letter or choose not to respond at all. In all of these cases, some aspects have to be considered: If you do not respond to a collection letter you have received as debtor, you will soon receive another collection letter, or you will be contacted via phone. Usually, an agreement regarding payment by instalment is included with the second collection letter. If you do not respond to the collection letter, you have to expect a call from the collection company. Debt collection via phone is often more effective than a collection letter. However, experts advise the debtors to become active on their own. This applies, in particular, in cases in which the debtor has several outstanding debts. In these cases, it is recommended that you contact advice centres, such as consumer advice centres or a debtor advisory office. Alternatively, you can also contact an online advisory office of the German debtor advice working group, Bundesarbeitsgemeinschaft Schuldnerberatung. There, you can get an overview of your personal financial situation, and negotiations with the respective creditors can be initiated to help you clarify and sort out your own financial situation.

If, as a debtor, you choose to pay the items listed in the collection letter, you should first make sure that the collection company is entitled to collect the outstanding account. A copy of the power of attorney or of the declaration of assignment concluded between the creditor and the collection agency can be presented to this end. Moreover, it is also recommended that you check that the collection agency is respectable by consulting the company's website or the federal association of German collection companies, Bundesverband Deutscher Inkasso-Unternehmen e.V. Furthermore, in response to a collection letter, it is also recommended that you check whether the claim asserted actually exists and whether it is justified.