Letters of demand

A letter of demand is usually sent when you have tried unsuccessfully to get your invoice paid and it is the right time to take more serious action. Often this is the final reminder letter before taking legal action. You can send it yourself or ask a lawyer to write it on their letterhead.

Before writing a letter of demand, it is important to send first and second reminder letters. These can be friendlier and help you maintain your business relationship with the hirer if this is important to you.

A letter of demand states how much is owed, what for and when the invoice needs to be paid. It may also include a warning that you will consider legal action if the debt is not paid by a particular date. The title 'Letter of demand' at the top of the page lets the hirer know you are serious about getting your money.

It is important to understand the consequences of sending a letter of demand. While ADR is an assertive approach, which can reduce damage to and even improve business relationships, sending a letter of demand could inflame a dispute. Even so, this action may be necessary to recover a debt.

Before sending your letter of demand, it may help to get some advice from someone who has had experience with debt recovery before. It is also important to find out who owns the business that owes you money, as it may not be the person with whom you made the original agreement. The best approach is to send your letter of demand to the person who owns the business.

Sample letter of demand

Letter of demand

[your business name, address and contact details]

[hirer's name and business address]

Dear [name of hirer]

I am writing in relation to the amount of $[amount 'including GST']. According to my records this was due to be paid by you on [date] and remains outstanding. My requests for payment are listed below.

The amount relates to [description of services] provided to you at your request, on [date].

Please find enclosed a dated copy of the invoice and note that it specifies [describe payment terms and instructions]. I have also enclosed the following documents:

1.  [name of document]

2.  [name of document]

[Documents may include previous requests for payment and list and enclose any other relevant documents that support your claim for the amount owing].

Please be advised that I demand payment of the invoiced amount [plus an amount of ${amount} for late payment interest as agreed in our contract dated {date}] within seven days of the date of this letter.

Late payment interest: The total amount owed may include late payment interest only if your written contract contains a late payment interest clause.

Payment should be made by [describe manner in which you would like to receive payment i.e. bank account for deposit or address for cheque to be posted].

If payment is not received within seven days of the date of this letter I reserve the right to take legal action to recover the monies without further notice to you.

Yours sincerely

[signature]

[your name and title]

[date]

Example: when to send a letter of demand

Abdul, an independent contractor, fixes computers for a living. One day, Troy, a small distribution business owner, called Abdul in a panic – his computer system had crashed and he was unable to process any transactions manually. Abdul understood Troy's situation and postponed two other jobs to help Troy with his problem. He was on site repairing Troy's computer within 30 minutes.

Abdul explained that he charged an hourly rate of $150 (plus GST) in addition to any required hardware. Troy agreed to pay 'whatever it took' to get his computer working again because his business depended on it.

It was a big job that involved replacing the hard drive. Abdul worked for six hours and installed a hard drive that cost $1,200. Abdul invoiced Troy for the cost of labour and parts – $2,100 plus GST. Abdul sent Troy an invoice with 14-day payment terms and details of the payment methods available.

Three weeks later, Troy had not paid the bill. Abdul phoned Troy, who said he would pay the invoice the next day. A further two weeks went by without the payment being made. Abdul tried to call Troy again, without success. Abdul decided to send a late payment reminder letter but Troy still did not pay the account.

After two weeks and more promises from Troy to pay, Abdul sent a second reminder letter explaining that if Troy didn't pay, Abdul would have difficulty paying his suppliers for the hard drive, which he had bought on credit. 

Abdul decided that he didn't want to do any more jobs for Troy. He was upset that Troy hadn't paid him after he had gone to so much trouble to help him at the risk of disappointing his other customers. Abdul decided to give Troy one last opportunity to pay the invoice by sending a letter of demand. If Troy doesn't pay the invoice soon, Abdul intends to apply to the Small Claims Court.

Letter of demand checklist

  • Have you have already tried friendlier means to recover the debt, such as a polite phone call or late payment reminder letters?
  • Does it include precisely accurate information? Could anyone say that something in the letter is false or misleading?
  • Does it include a late payment interest rate? (This should only be included if it was specified in the contract.)
  • Does it inform the hirer of any action you are not willing to take? (You should only mention action that you are prepared to take.)
  • Is it polite and respectful? (It shouldn't harass the hirer.)
  • Have you signed and dated it?
  • Have you attached copies of all relevant supporting documentation? (For example, a contract, invoice, first and second late payment reminder letters and any relevant emails, faxes or letters.)
  • Have you kept a copy of the original documents and the signed letter of demand?

Important: Make sure you send the letter by registered post and that you request a 'signed proof of delivery' card (keep this card in case you need it as evidence in court later).

Getting a lawyer to write a letter of demand

A lawyer can write a letter of demand for you on the law firm's letterhead. This can sometimes encourage the hirer to pay the debt promptly. Most law firms charge a set fee to write a letter of demand on your behalf. This can be a relatively inexpensive and effective way of recovering your debt. Make it clear to the lawyer that the letter of demand is all you are asking for. Getting advice from a lawyer will usually cost you more.



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