What is a letter of demand?

Why specificity is what makes it work

A vague demand invites a vague response. A letter naming each invoice, its date, its due date, its amount and the number of days it is overdue leaves nothing to negotiate about the facts, and it signals that the sender has their records in order. Add the work the invoices relate to, referencing the accepted quotation and the sign off sheet, so the debt is tied to something the recipient agreed to. Then set out the account history: the statement sent in August, the reminder in September, the phone call and the promise to pay that was not kept. That history is what turns a request into a demand, because it shows a court that the sender was patient before they were formal.

Naming the consequence precisely

A promise of further action is not a consequence. Naming the court, the division, the amount of the claim, the interest at the prescribed rate from each due date and the filing fee is a consequence, and it is the paragraph recipients actually read. Where a judgment could be recorded against a company and affect its credit, saying so is legitimate and effective. What matters is that the stated consequence is one the sender is genuinely prepared to carry out, because a demand that names a court and is followed by nothing teaches the recipient that the next one can be ignored too. Only name the step you will actually take.

Open, not without prejudice

Letters written to settle a dispute are often marked without prejudice, which keeps them out of evidence. A letter of demand should not be, because its whole purpose is to be shown to a court as proof that the debt was demanded and the recipient had a chance to pay. Say so on the face of it. Keep any genuine settlement discussion in a separate letter that is marked properly, so a later offer to accept a reduced amount does not undermine the demand. Mixing the two produces a document that cannot be used for either purpose, which is a common and avoidable mistake.

How long to give, and what to ask for

Fourteen days from the date of the letter is the usual period for a commercial debt, and seven can be justified where there is a history of broken promises. State the actual calendar date, not just the period, so nobody argues about when it started. Give a single, clear way to pay, with the account details, and a named contact for anyone who wants to discuss it. Asking for payment of the whole amount is normal; offering an instalment arrangement in the same letter weakens it, and is better held back for the conversation the letter produces. Send it by email and by post, and keep proof of both.

Before sending, check three things

That the debt is right, because a demand for the wrong amount hands the recipient an easy answer and costs you the initiative. That the recipient is the correct legal entity, with the registered name and number, since a demand addressed to a trading name may be met with a letter pointing that out and nothing else. And that there is no genuine dispute about the work, because a demand sent over a live disagreement about quality reads as pressure rather than as recovery and may be raised against you. Where a dispute exists, resolve or narrow it first, or acknowledge it and demand the undisputed part.

What happens after the deadline

Either payment arrives, a negotiation starts, or nothing happens. If nothing happens, do what the letter said, promptly, because the gap between the deadline and the action is where credibility is lost. For smaller commercial debts most jurisdictions have a small claims process that is inexpensive and does not require a lawyer, and the rules are published by the relevant court. In Australia, small business commissioners and the federal small business ombudsman offer low cost mediation that is often faster than court and preserves a relationship worth keeping. Consider that route before filing, and mention it in the letter if you would genuinely use it.

Questions people ask