Sometimes, while running a company, you will encounter clients that will not pay you what they owe on time. In many circumstances, the clients will pay that money back as soon as they realize that they are in debt. However, you may encounter clients who refuse or are unable to pay the money that they owe you. In these circumstances, you may wish to send the clients a letter of demand. This article explains what a letter of demand is and how to send one to a client who owes you money.

What is a Letter of Demand?

A letter of demand is a formal request, usually written by a lawyer, that demands something from the other party. You will not always be demanding the payment of a debt. Instead, the letter of demand might ask the other party to refrain from doing something (injunction) or to carry out the obligations of a contract that they had agreed to.

For example, your artwork might feature in a friend’s documentary. However, the friend has failed to provide proper attribution in the final product. Therefore, you might want to send them a letter of demand that asks for proper attribution to be included in the documentary’s credits.

Normally, a letter of demand will threaten further legal action if the debt is not addressed within a certain period of time. This period usually varies anywhere from 14 days to 28 days. However, it may also depend on the subject matter of the letter.

A letter of demand is very effective, since it essentially places the ball in the court of the other party. Ignoring a letter of demand may be looked upon unfavorably if the matter ever gets to court. As such, the recipient is put under some pressure to respond within the set time period.

What Are the Benefits of Sending a Letter of Demand?

There are various benefits to sending a letter of demand, including:

  • notifying the other party that you intend to take legal action if they ignore the demands of the letter;
  • giving the recipient one final opportunity to attend to the demands;
  • protecting the reputation of the recipient prior to commencing the court process;
  • demonstrating to a court that you provided a fair and reasonable opportunity to address the demands; and
  • that, in court proceedings, it will be considered evidence of your attempts to settle the matter.

What Is Involved in Sending a Letter of Demand?

The first step is to make sure that the details of the recipient are correct. This involves checking;

  • their address;
  • the amount owing; and
  • the terms of the contract.

Next, you will want to attach any relevant documentation, correspondence or other evidence that proves you the other party owes you what you say you are owed. This is crucial, as it evidences your claim in the letter of demand.

In terms of style, the letter of demand should not look like a court document. It also shouldn’t it insinuate that legal proceedings have already commenced. The idea is to give the other party an opportunity to address the demands. In other words, it is an invitation to meet the demands or at least to negotiate the matter outside of court.

Further, the letter of demand should be sent using registered post so that you can prove it was in fact sent. As previously mentioned, the period of time that you allow for the other party to respond might depend on the urgency of the matter. However, it will usually be no less than 14 days.

What Steps Should I Take if I Am Sent a Letter of Demand?

Do not ignore the letter. Read through to check that the details are accurate. If the amount is incorrect or the demands are unfounded, you should respond accordingly and request an explanation from the other party. The other party may have accidentally omitted certain clarifying details.

If you disagree completely, seek legal advice from a business lawyer.

What Should I Do if I Agree With the Letter of Demand?

If you believe the claim is accurate and you wish to meet the demands, get in touch with the other party and notify them of your intentions.

If you owe money and wish to discuss a payment schedule, communicate to the other party that all correspondence is to take place on a ‘without prejudice’ basis. This means that you can change your position in the future if you cannot agree and decide not to pay the alleged debt.

If the amount owed is more than what you can afford, make an offer to meet the debt by paying it off in instalments. If you cannot pay the creditor at all, seek legal advice immediately.

Key Takeaways

If you are owed money from a client or wish to stop someone from doing something that will breach your contract, you may wish to send a letter of demand. When you wish to do this, you will need collate all the relevant documentation and take the appropriate steps. If you need assistance in drafting and sending a letter of demand, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on the page.

Lachlan McKnight
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