Most business owners have been in this situation. You provide the goods or services, issue your invoice and the invoice due date slowly passes without payment. Sometimes, despite numerous requests for payment of your invoice, it simply remains unpaid. So what do you do now?
If payment of your invoice remains outstanding despite your commercial attempts to resolve the matter, we recommend issuing a letter of demand.
What is a Letter of Demand?
A letter of demand is a letter you send to customers who have not paid an invoice by a due date. A letter of demand should include:
- the amount due;
- the legal basis for that amount being due;
- a final date for payment of the amount due (i.e. 7 – 14 days); and
- the relevant supporting documents. This includes a copy of your terms of sale, your outstanding tax invoice and copies of any contracts you may have with the customer.
If the customer fails to pay the amount claimed in the letter of demand by the due date, you can then use the letter of demand as evidence in the court proceedings to support your claim.
Do I Need to Issue a Letter of Demand?
Generally speaking, you may commence legal proceedings against a debtor concerning a debt once the tax invoice becomes overdue. There is no legal requirement to send a letter of demand to a debtor before commencing legal proceedings. In saying this, when you or your lawyer send a letter of demand, it sends a clear message to the debtor that you are serious about the recovery of your debt. It also puts the other party on notice about the threat of legal action.
The court looks unfavourably on a debtor ignoring a letter of demand in the event you commence legal proceedings. Sometimes, simply issuing the letter of demand is enough to result in the debtor quickly paying the debt and ultimately, may avoid you having to incur further costs in commencing legal proceedings.
What are the benefits of issuing a letter of demand?
The benefits of issuing a letter of demand to a debtor include:
- Placing pressure on debtors to pay the debt while avoiding the expense of litigation;
- Providing a further opportunity for the debtor to make payment of the debt;
- Providing the debtor notice that you will commence legal proceedings if the debtor fails to comply with the letter of demand;
- Using the letter of demand to support your claim if you choose to initiate litigation;
- Courts look unfavourably on commencing legal proceedings where the debtor has failed to comply with the letter of demand;
- Assisting you in an application for costs if you serve the demand and the debtor ignores it;
- Providing evidence to the court that you did try to settle the matter before commencing legal proceedings.
If you are owed money and require assistance with issuing a letter of demand, LegalVision has an experienced team of debt recovery lawyers able to assist you. LegalVision can also provide you with a fixed-fee quote so that you have certainty moving forward. Questions? Please get in touch on 1300 544 755.