A letter of demand is an important step in the debt recovery process. You usually send one after you have approached the debtor to repay the debt and they still are not paying. This article will discuss what is a letter of demand, when you should consider sending one and why.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
When Should I Send a Letter of Demand?
You should have a clear accounts process set up for your business. Generally, before sending a letter of demand, you should try to ask the debtor to pay the debt through written reminders and phone calls. The purpose of this is to:
- get paid; and
- preserve your business relationship as much as possible (if this is something you want to maintain).
A letter of demand should be the final letter you give to the person who owes you money before you take legal action. This is because a letter of demand can be quite detrimental to business relations. As such, sending a letter of demand should be your last resort when recovering an unpaid debt. You (or your business) or your lawyer can send the letter of demand.
Sometimes your debtor’s response to your letter will give you valuable insight into why they are not paying the debt. That insight can prove invaluable for you in determining whether it is worthwhile pursuing the debt and your next steps.
What Should a Letter of Demand Include?
Firstly, you should address it as a letter of demand. You should make a firm statement that makes it clear that you are serious about and intend on getting payment. You need to set out what the amount is for and the exact amount owed. It is sometimes prudent to refer to or add an invoice to the letter. The letter should also state that if the debt is not paid by a certain date that you will bring or will consider bringing legal action. Ensure that you also clearly state how the debtor can pay the debt.
If you have received any promises of payment from the debtor, sometimes it is helpful to include them and the dates you received them in the letter. Similarly, if the party has told you what excellent service you provided after completing the work, this is also helpful to include in your letter.
Give the debtor a short period of time to respond, either seven or fourteen days. If the matter has been ongoing for some time, this is usually a reasonable timeframe.
Continue reading this article below the formWho Should You Send Your Letter of Demand To?
It can sometimes be difficult to ascertain exactly to whom you should address your letter of demand. Usually, the best approach is to send the demand to the person who owns the business, for example, the CEO or director. That often elicits a better response than sending it to the accounts department (again).
Try to get both a postal or street address and an email address so you have a place to which you can deliver the letter. You can be more confident that the letter will reach its intended receiver if you send it via multiple channels. It is a good idea to send the letter by registered post so that you track it and know when it arrives.
Can I Claim Interest in a Letter of Demand?
If you have a written contract or terms and conditions that require interest to be paid, then you can claim this in your letter of demand. The letter should reference the specific contract clause you are relying on and include the exact amount of interest claimed. Make it as easy as possible for the debtor to pay the debt by providing the exact amount owed.
If you are not entitled to interest under your contract, you can reference the fact that you may claim interest from them if legal proceedings are commenced.
Checklist: Sending a Letter of Demand
When sending a letter of demand, ensure that you do the following:
- try to elicit payment by calling and sending reminders before sending a letter of demand;
- if that fails, draft a letter clearly stating the debt due, including any interest owed (if applicable);
- clearly state in the letter that you intend to take legal action if they do not pay the debt;
- clearly state in the letter how the debtor can pay the debt;
- give a clear date in the letter by which you expect them to pay the debt; and
- attach all relevant supporting documents, including any relevant invoices.
Key Takeaways
If a debtor is refusing to repay a debt despite your reminders, you should consider sending them a letter of demand. A letter of demand makes it clear to the debtor that you expect them to pay the debt and sets out clear consequences if they do not make payment. Usually, this is legal action. Ensure in your letter of demand that you clearly state:
- the amount owing;
- what the amount is due for; and
- a method by which the debtor can pay.
If you have any questions about drafting a letter of demand to recover a debt, get in touch with LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.
We appreciate your feedback – your submission has been successfully received.
