A letter of demand is an important step in the debt recovery process. It should be sent only after ‘friendlier’ overtures have been made to recover a debt. Here we will set out some of the keys to a letter of demand and when you should consider sending one.

When Should I Send a Letter of Demand?

As a general rule, you should have a clear accounts process set up for your business, where unpaid debts are ‘escalated’ to a different, more serious stage if they remain unpaid for a certain period of time.

Generally, before sending a letter of demand, you should have at least tried with friendly written reminders and phone calls. The purpose of this is to:

  • get paid; and
  • attempt to preserve your business relationship (if this is something you want to preserve!).

We recommend you phone parties as well as it is all too easy to ‘forget’ an email reminder. A letter of demand kicks things up a notch. It should be the final letter given to the other party before taking legal action. To be honest sending a letter of demand can be a real inflamer of relations between parties so be warned! Letters of demand can be either sent by your business or by your lawyer. We will discuss the advantages to having it sent by a lawyer.

What Should a Letter of Demand Include?

Firstly, you should address it as a letter of demand. No longer are you sending friendly reminders or statements. You are making a statement that you are serious about getting your debt paid.

You need to set clearly out the exact amount owed to you and what the amount is for. It is sometimes prudent to refer to or annexe an invoice.

The letter should also state that if the debt is not paid by a certain date that you will or will consider commencing legal action.

You need to provide a way for the debtor to pay the debt i.e.,. Via your account or a cheque
If you have received any promises of payment from the debtor, sometimes it is helpful to include them in the letter. It never looks good to receive a letter of demand from someone which says ‘On x date, x date and x date you told me money would be paid the next day’. Similarly, if the party has told you what great service you provided after completing the work that is helpful to include in a letter.

Give the debtor a short period of time to respond – either 7 or 14 days. If the matter has been ongoing for some time that is more than a reasonable period of time.

Who Should You Send your Letter of Demand To?

It can be difficult sometimes to ascertain who exactly is the entity how owes you money. If it is unclear, you should obtain legal advice. The best approach is always send the demand to the person who owns the business (for example the CEO or director). That usually elicits a better response than sending it to the Account Department (again).

Try to get both a postal / street address and an email address to send the letter to. Sending by post more confident that the letter has reached its intended destination if you send it via multiple channels. It’s a good idea to send the letter by registered or trackable post so you know it has arrived.

Can I Claim Interest in a Letter of Demand?

If you have a written contract or terms and conditions that provide for this, then yes you should! The letter should reference the specific clause you are relying on and include the exact amount of interest claimed. Remember the aim of this letter is to say to your debtor ‘If you don’t pay $x by x date, I will commence legal proceedings against you’ so make it easy by providing the exact amount owed to you.

If you aren’t entitled to interest under your written contract, you can include reference to the fact that interest may be claimed from them if legal proceedings are commenced.

Case Study

Party A is a service provider, and Party B comes to him seeking urgent work. The hourly rate is explained verbally and agreed to by Party B. Party A then completes the work and invoices Party B for the work done. The invoice contains 14-day payment terms and how to pay the money.

Well 14 days come and go, and the debt isn’t paid. Party A is not concerned as it is not uncommon for invoices to be overlooked, I’ll give him a call. Party B tells him the invoice will be paid the next day. It isn’t. A further 14 days go by without payment and more promises from Party B to pay the debt. Two late payment reminders are sent from Party A to Party B.

It gets to the point where Party A decides that Party B is not a great customer, and he doesn’t want to do further work for him. That means, there is no concern about preserving the business relationship. Party A decides to give Party B one last opportunity to resolve this matter before it is escalated. So he sends a letter of demand giving him a period of time to respond, failing which he intends to take this matter to the Small Claims Division of his Local Court.

Should You Get a Lawyer to Write your Letter of Demand?

There is certainly no obligation to do so as the process is quite simple and straightforward. The biggest benefit to having a lawyer draft and send the letter for you is that it is on the firm’s letterhead. This can be a pretty powerful persuader for a party to pay the debt promptly. It’s suddenly no longer seen as ‘another reminder letter’ to chuck in the bin or ignore, but something far more serious.

A letter of demand can be prepared by a lawyer on a low fixed fee basis and remains a very cost effective way to recover your debt.

A Letter of Demand Checklist

  • Have you already tried to elicit payment from the debtor in friendlier ways? You’ve called and sent reminders? Check!
  • You have drafted a letter (or gone to see your friendly lawyer draft a letter) which contains accurate statements about the debt due and owing to you? Check!
  • You haven’t included monies or interest that aren’t due and owing? Check!
  • You’ve reviewed your terms and conditions or contract for anything additional? Check!
  • The letter clearly sets out that you intend to escalate the matter legally if the debt isn’t paid. Check!
  • The letter clearly provides a method upon which the debt can be paid. Check!
  • The letter gives a clear date for the debt to be paid by. Check!
  • You’ve attached all relevant supporting documents? Check!

Once the letter is ready to go, you should keep a full copy of it before sending it.

The added benefit of issuing a letter of demand to a debtor (besides the obvious hope you will get paid) is that if they respond to the letter of demand, it will hopefully give you more of an insight into why the debt isn’t being paid. That insight can prove invaluable for you (and your lawyer) in determining the next legal step, or indeed if it is worthwhile pursuing the debt.

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LegalVision can provide you with cost effective letter of demand options. Give our Disputes Lawyers a call today to see how we can assist. Call us on 1300 544 755 or fill out the form on this page.

Emma George

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