What is a Letter of Demand and How to Write One?

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Date published: 30 Apr 2021
by DocPro Legal

You are a manufacturer of toys and you are struggling to receive payment from one of your customers. You do not know what to do. You had a conversation with the customer reminding them that payment was due and sent reminder letters to them. Yet, these efforts were of no avail.

 

One effective way to deal with this situation is to send your customer a letter of demand. Despite the obvious utility of letters of demand, few know what they are and how they can write one.

 

This article will detail exactly what a letter of demand is, and how you can write one.

 

 

What is a letter of demand?

 

A letter of demand is a letter sent by a creditor after they have tried, but failed, to get an invoice or loan payment repaid.

 

A letter of demand allows the creditor to demand repayment in written form and allows the purported debtor to make amendments and meet the demands before further legal proceedings are instituted.

 

The sending of a letter of demand is often preceded by more informal attempts made by the creditor to be repaid. These informal attempts may include things like phone calls, emails, and other communications with the purported debtor.

 

Sending a letter of demand is often the last step taken before formal legal proceedings are commenced against the debtor. It is important to note, however, that sending a letter of demand is not a prerequisite to institute formal legal proceedings.

 

A letter of demand will give the debtor details of the demand. It will state things like how much money is owed, what the money is owed for, and when payment will need to be made by (see below).

 

When to send a letter of demand?

 

A demand letter adds a formal element to your efforts to obtain repayment. Demand letters should only be used as a last resort before you are contemplating instituting legal proceedings.

 

Prior to sending a demand letter, a creditor should make informal attempts to obtain repayment. These informal attempts can take many forms. For instance, creditors often have informal conversations wherein they remind the debtor of their outstanding payment obligations.

 

Another informal way of obtaining repayment is to use a reminder letter. A reminder letter is a letter intended to remind the debtor about an outstanding payment obligation. It solely serves as a reminder and is not intended to warn the debtor about possible legal proceedings.

 

By using a reminder letter, the creditor can obtain payment from the debtor without escalating the issue and possibly damaging their business relationship. After all, the debtor may have not paid for forgivable reasons such as simply forgetting about the due date for payment, or because of temporary cash flow problems.

 

A reminder letter is very similar to a letter of demand. They include a lot of the same information. Both letters inform the debtor that they owe money to the creditor, inform the debtor how much is owed and inform the debtor as to when payment was due. A reminder letter does not normally threaten legal action, however. Threatening legal action in case payment is not made is done through a letter of demand.

 

As may have been hinted by the above, reminder letters can be difficult to draft. Instead of trying to draft one yourself, we recommend that you use one of DocPro’s template reminder letters. We have reminder letters concerning payment for goods and services. We have a first reminder letter, which you can find here. We also have a second reminder letter, which you can find here.

 

 

Who can send a letter of demand?

 

Oftentimes, companies or individuals will get their lawyers to draft and send the letter for them.

 

A lawyer is not necessary, however. Anyone can send a letter of demand, regardless of whether they are an individual person or company.

 

How to write a letter of demand?

 

There are many things to remember to include when writing a letter of demand.

 

Firstly, you should clearly outline the facts underlying your dispute. The letter of demand should include the following information:  

  • That the debtor owes you (the creditor) money

  • How much is owed and what the money is owed for. A clear explanation should be provided as to how this figure was arrived at. This is normally done by itemising each part of the total amount owed.

  • When the money should have originally been repaid by

  • When the debtor should repay the money to the creditor

  • The payment method to be used in repaying the money. For ease and completeness, it might also be worthwhile providing details as to where payment should be made. This might be in the form of bank details or the address to which cash should be delivered.

Furthermore, make sure to attach other relevant documentation to the letter. Such relevant documentation may include contracts that you have entered into with the debtor. Other examples of relevant documentation include all correspondence, such as reminder letters, and invoices. Attaching these documents will help substantiate your claims and hopefully help convince the debtor of their wrongdoing.

 

Secondly, you should set a clear deadline. This will serve as a date by which your demands should be met. You should also explicitly state that should your demands not be met by such date that you will consider instituting legal proceedings against the debtor. It is best to be as specific as possible when setting a deadline. You should make sure to include the actual date to ensure the recipient is as clearly informed as possible.

 

Normally, a deadline of 1-3 weeks from the date of sending the letter is best. If you set the deadline too short, the debtor will not have a proper opportunity to consider their legal position, undermining the likelihood of the creditor reaching a settlement with the debtor.

 

Finally, you should make sure to include certain key details that any letter should have. These include the date, your full name, and your contact details (email, address, telephone number) should the debtor wish to contact you.

 

Clearly, writing a letter of demand is no easy task. Save yourself the hassle of trying to write one yourself by downloading DocPro’s template letters of demand. DocPro has a letter of demand for the payment of goods and services. You can find it here. We also have a letter of demand for loan repayment or purchase reimbursements. You can find it here.

 

Is there anything I should remember to do when sending a letter of demand?

 

You should remember to make and keep copies of each and every demand letter you send to the other party. Furthermore, ensure that you make and keep copies of any and all correspondence received from the other party as well. You will likely need to present these documents to the court should your dispute turn into a lawsuit. Therefore, it is very important to keep copies of these documents.  

 

 

What are the benefits of using a letter of demand?

 

1) Increases the likelihood of reaching a settlement

 

If you use a letter of demand, you may be able to avoid instituting formal legal proceedings altogether against the debtor. Sending a letter of demand, in writing, adds an element of formality to your efforts to get repayment. It will signify to the debtor that the creditor is serious about his or her efforts to be repaid.

 

The debtor will likely be aware that they could be the subject of a lawsuit if the letter of demand is not complied with. The debtor will also likely know that lawsuits are expensive and time-consuming. This element of formality, paired with these risks can sometimes compel the debtor to settle.

 

2) Can help the creditor if the creditor proceeds to file a lawsuit against the debtor

 

If the creditor, unfortunately, has to file a lawsuit against the debtor, a letter of demand can be very useful to evidence the creditor’s claims.

 

As part of the legal proceedings, the creditor will have to prove the truthfulness of claims that they make. Letters of demand can be helpful in this regard in helping prove the truthfulness of claims.

 

3) It can help the creditor maintain a positive commercial relationship with the debtor

 

A by-product of a letter of demand encouraging settlement is that it can help the parties maintain a positive working relationship. This is in deep contrast to litigation, where proceedings are highly adversarial, and after which it is often difficult to maintain a positive working relationship.

 

 

Is there anything to avoid when writing a letter of demand?

 

Avoid using language which may intimidate or threaten the debtor. This is important for two reasons.

 

Firstly, the intention behind sending a letter of demand is usually to reach some form of settlement with the purported debtor. Using rude language, such as swear words, will risk damaging the relationship between the parties, which may make it harder to reach any such settlement.

 

Secondly, by using rude language you risk compromising any future business relationship with the debtor beyond the point of salvation. Even if your letter of demand is successful in helping you arrive at a settlement with the other party, you may nonetheless compromise future business relations with the debtor, simply because of the language you have used.

 

What are the common responses to a letter of demand?

 

The debtor may respond in a variety of ways.

 

The debtor may meet the request of the creditor by fulfilling the demands stated in the letter. In this case, the creditor will be satisfied, and no further action needs to be taken by the creditor.

 

The debtor may explicitly respond to the letter of demand, often with a letter of their own. In this letter, the debtor may detail how they plan to meet the demands stated in the letter. Or they may contest the demands on the basis that they are baseless and unwarranted. Depending on the response and the circumstances of the dispute at hand, the creditor may feel compelled to institute formal legal proceedings upon receiving such responses from the debtor.

 

The debtor may even ignore the letter of demand completely. Again, depending on the circumstances of the dispute, the debtor may feel compelled to institute legal proceedings at this stage.

 

 

Consequences of ignoring a letter of demand

 

If a debtor ignores a letter of demand litigation will likely ensue. This is a very unfavorable outcome for the debtor as litigation is costly both in terms of time and money.

 

If litigation ensues, settlement is likely not going to be possible. A debtor may seek to settle the dispute once litigation commences. Yet, at this stage, the creditor is likely not going to be receptive to any attempt to settle. This is because ample opportunity was afforded to the debtor to settle before formal litigation was instituted.

 

Moreover, if litigation ensues, and the debtor ends up losing the case, the debtor is likely going to be liable to pay a larger sum than that stated in the letter of demand. This is because the recipient may be liable to pay for damages and interest above and beyond the sum originally stated in the letter of demand.

 

Finally, litigation is an extremely adversarial affair. It is a public process in which a lot of information about both parties is revealed for the world to see. This can have damaging effects on the relationship of the parties. Oftentimes, litigation damages the relations of the parties to such an extent that there remains no viable commercial relationship between the parties from thereon.

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DocPro Legal

DocPro Legal is a team of legal professionals with a passion for making quality documents and legal contract templates widely available to the public through cutting edge technology. Our lawyers are qualified in numerous common law jurisdictions including the United Kingdom, Australia, New Zealand, India, Singapore and Hong Kong. We have experience in major law firms and international banks with expertise in business, commercial, finance, banking, litigation, family, succession and company laws.

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