Did you give a personal loan to a family member, and they haven’t paid it back? Or did you grant a customer an “I owe you” (IOU), and they haven’t paid you for your product? How frustrating!
Thankfully, there are letters called Letters of Demand. While these do not provide assurance that your debt will be paid back, they do provide a good paper trail of your demands for payment should you decide to take further legal action.
That said, writing a letter of demand can be a daunting task, especially when you’re owed money and feeling frustrated.
This guide will walk you through the process of crafting an effective letter of demand, ensuring you have the best chance of recovering what’s owed to you while maintaining professionalism.
Table of Contents
What is a Letter of Demand?
A letter of demand is a formal document used to request payment of an outstanding debt or to seek resolution of a dispute. It serves as the first official step if you decide to use the legal system to settle a debt in Australia.
If you are owed a certain amount of money, you can issue a letter of demand to the person or entity that owes it to you. The letter will ask for the money back and threaten to commence legal action if the debt is not paid within a period of time (usually 14 – 28 days).
Generally, letters of demand are used in the following situations:
- Unpaid invoices for goods or services
- Overdue rent payments
- Breach of contract disputes
- Recovery of borrowed money
- Compensation for damages or losses
The letter should clearly state the amount owed, the reason for the debt, and provide a deadline for payment. It also often includes a warning of potential legal consequences if the debt remains unpaid.
Why send a letter of demand?
Sending a letter of demand warns the other party that your demand for payment of outstanding money is the final opportunity before you take the matter further.
However, where the dispute goes to a tribunal or court, the letter can be used as evidence that you have taken reasonable steps to seek payment of the debt. If you are a recipient of a letter of demand, it is proof of your points of dispute, for example, if the claimed debt is too steep and unreasonable.
Writing a letter of demand is crucial as it formally notifies the debtor of your intention to recover the debt and provides them with an opportunity to resolve the issue before legal action is taken. This approach can be highly effective in resolving disputes without the need for court intervention, saving both time and money.
Here are some key reasons you may consider writing a letter of demand.
- Formal documentation: It creates a paper trail of your attempts to recover the debt.
- Legal requirement: In many cases, it’s a necessary step before initiating legal proceedings.
- Prompt resolution: It can motivate the debtor to pay quickly to avoid further action.
- Cost-effective: Resolving the issue at this stage is much cheaper than going to court.
- Professionalism: It demonstrates your serious intent while maintaining a business-like approach.
Of course, it can be awkward to send a letter of demand for the first time, especially if the people involved are friends or family. But often, its benefits will be worth it as it can help you avoid legal action.
What to include in a letter of demand
There are several crucial sections in a letter of demand. There are also some things you should consider before you start writing one. Here is how to go about preparing a letter of demand.
Step 1: Understand the purpose
Before drafting your letter, be clear about your objective. Are you seeking full payment, a payment plan, or resolution of a specific dispute? Your letter should reflect this purpose clearly and concisely.
Step 2: Gather all necessary information
Collect all relevant documents, including:
- Original invoices
- Contract or agreement details
- Records of goods or services provided
- Previous correspondence about the debt
- Dates of any prior payment requests
Step 3: Include key details
A letter of demand usually states the amount outstanding and a schedule or date on which that amount is payable before further legal action is taken. Any relevant documents should be attached to the letter of demand, including any tax invoices, contracts, agreements, and/or prior letters of demand, to assist the other party in understanding why the debt is owed.
Step 4: Format the letter properly
Wondering how to structure a demand letter? Here is the most common outline to follow.
- Header: Include your business name, ABN or ACN, address, and contact details.
- Recipient details: full name and address of the debtor
- Date: current date of writing the letter
- Subject line: Clearly state “Letter of Demand” as the subject.
- Salutation: Address the recipient formally.
- Introduction: Briefly state the purpose of the letter.
- Body: Provide details of the debt and payment instructions.
- Closing: Include a firm but polite request for payment and potential consequences.
- Signature: Sign the letter and include your full name and title.
Step 5: Deliver the letter of demand to the debtor
It is best to hand over the letter of demand in person. If that is not an option, sending it by registered mail or fax is the next best option. Remember to retain a copy of the letter for your own purposes.
Key elements of a demand letter
As discussed in the previous section, formatting your letter properly is very important. Here are more detailed guidelines on how to structure the letter and what information to include.
Your information
Start with putting your full name, business name (if applicable), ABN or ACN, address, and contact details.
Recipient’s information
Next, detail the full name and address of the debtor.
Clear description of the dispute or payment
You’ll now need to formally but concisely write out the details of the dispute or payment owed. Here are things to include:
- Amount owed
- Reason for the debt (e.g., unpaid invoice, breach of contract)
- Date the debt was incurred
- Any relevant invoice or contract numbers
Payment details
You will also want to add relevant information about how the debtor may pay the money back. Include the following:
- Total amount due, including any interest or late fees if applicable
- Acceptable payment methods
- Bank account details for direct deposit
Deadline for action
Specify a reasonable timeframe for payment, typically 7-14 days from the date of the letter.
Consequences of non-compliance
Clearly state the actions you intend to take if payment is not received by the deadline, such as legal proceedings or engaging a debt collection agency.
Supporting documents
Attach copies of relevant invoices, contracts, or previous correspondence.
Simplify the process by using a template
Writing a letter of demand can be confusing and stressful. Plus, it’s important to get all the details right so it can later be used in legal proceedings if necessary.
Using a template can save you hours of time and ensure you include all necessary elements.
We offer three templates to help you write a letter of demand by example.
- First Attempt: A polite but firm initial request for payment
- Second Attempt: A more assertive follow-up letter
- Third Attempt: A final notice before legal action
These templates are available on our website, and you can customise them to suit your specific situation.
When to seek legal advice?
While many letters of demand can be written without legal assistance, there are situations where professional legal guidance is advisable:
- Large sums: If the debt is substantial, a lawyer can help ensure your letter is legally sound.
- Complex disputes: When the issue involves complicated legal matters or multiple parties.
- Repeated non-payment: If previous attempts to recover the debt have failed.
- Potential legal action: If you’re considering court proceedings, a lawyer can advise on the strength of your case.
- International debtors: When dealing with overseas entities, legal expertise can navigate cross-border issues.
Of course, legal action is the last resort, but having a lawyer involved early on will help protect you in the case of complex disputes. If you are not sure whether or not you need a lawyer, start with a consultation.
FAQ
What is the meaning of a letter of demand?
A letter of demand is a formal written request for payment or action, typically used as a final step before legal proceedings. It clearly states what is owed, why, and when it should be paid or addressed.
Can I ignore the letter of demand?
Ignoring a letter of demand is not advisable. It may lead to legal action, additional costs, and potential damage to your credit rating. It’s best to respond promptly, even if it’s to negotiate or dispute the claim.
Can you send a letter of demand without a lawyer?
Yes, you can send a letter of demand without a lawyer. Many individuals and businesses successfully use templates or draft their own letters. However, for complex cases or large sums, legal advice can be beneficial.
Final thoughts
Writing a letter of demand is an important step in debt recovery and dispute resolution. By following the guidelines outlined in this article and using professional legal documents, you can craft an effective letter that increases your chances of a favourable outcome.
