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What is a Letter of Demand?

A letter of demand is a letter formally demanding that a debt be repaid. They are often used by persons who are owed money by a party who has not responded to invoices or other requests for the debt. Letters of demand should only be used for debts for goods or services that have been provided. They should not be used for money that is owed due to loss and damage.

In what situations can letters of demand be useful?

Letters of demand can be useful for many reasons, including that:

  • They give the party owing the debt a further opportunity to pay before legal proceedings are commenced;
  • They give the party owing the debt notice of the creditor’s intention to begin legal action if the debt is not paid;
  • They reduce the possibility of expensive legal action being launched that could severely damage the relationship between the debtor and the debtee;
  • They can be used as evidence in a legal action that the debtor had sufficient opportunities to make payment; and
  • They can also be used as evidence that there have been attempts to settle the dispute fairly and amicably without resorting to legal proceedings.

Letters of demand can be quite effective in many situations. Debtors may be scared into fulfilling their payment obligations by the threat of legal action. They may also have been intending to pay or negotiate with the creditor about the debt, and receiving the letter of demand may prompt them to do this.

What should you include in a letter of demand?

A letter of demand should state several factual matters, including the following:

  • What the amount is owed;
  • The date that the debt was due to be paid;
  • The date the letter of demand is sent; and
  • A description of what the debt is for (ie the goods or services that were provided).

The letter should also reference and attach evidence of the debt. Examples of such evidence include invoices or correspondence about the goods or services provided. It should also state the date by which the creditor wants them to pay the amount owing, details of how they want the debt paid and what action will be taken if the debt is not paid within the timeframe.

It is best to stick to factual matters in a letter of demand and not include any arguments or allegations against the debtor. When writing the letter, be aware of any monetary limits or time frames that might apply to an action to claim the debt if the matter were to proceed to court. You should also consider the best way to send the letter of demand. For example, you may want to consider sending it by registered post to ensure it is properly delivered. Alternatively, if you decide to send the letter via email, you may request a read receipt notification.

How do you respond to a letter of demand?

There are several ways that a recipient of a letter of demand may respond. These include the following:

  • They may acknowledge the debt and pay it;
  • They may deny owing the debt;
  • They may request further information about the debt;
  • They may attempt to negotiate to pay a lesser amount;
  • They may request to engage in alternative dispute resolution, such as mediation;
  • They may ignore the letter of demand completely.

What steps can be taken if payment is still not received?

If a letter of demand does not achieve what you had hoped it would and you have been unsuccessful in recovering the debt owed, you will need to consider the best way to proceed. Firstly, before commencing legal action, if you did receive a response to your letter of demand, you may want to consider whether you have given the debtor sufficient time to respond. Twenty-one days is sometimes cited as an adequate timeframe for allowing a debtor to respond to a letter of demand.

Secondly, you may want to consider whether alternative dispute resolution with the debtor may be a better way to proceed than commencing an action in court straight away. If the relationship is worth preserving, engaging in alternative dispute resolution may be a more feasible way of retaining an amicable relationship. If you decide to proceed to take legal action, the first step in the process is usually filing a statement of claim. You should seek legal advice if you decide to proceed to this step.

If you require legal advice or representation in any legal matter please contact Armstrong Legal. 

Kathryn Sampias

This article was written by Kathryn Sampias

Kathryn Sampias has a Bachelor of Laws, a Bachelor of Arts and a Graduate Diploma in Journalism. Kathryn was admitted to practice in 2005 and practised law for more than eight years, working both in private practice (mainly in defence litigation for professional indemnity disputes) and in the public service for the Australian Securities and Investments Commission (ASIC) in enforcement.

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