Articles > Small Business

What is a Letter of Demand?

November 26, 2020   Daniel KatzPhilip Evangelou

A letter of demand is a formal request by one party to another, demanding that something be repaid, or performed. This letter generally demands the repayment of a debt. However, this demand may also relate to other issues. This includes warning the recipient that they are engaging in repudiatory conduct.

Why Send a Letter of Demand?

The letter of demand is necessary for communicating a serious issue for a party. This issue arises where one party’s act or omission threatens the validity of their contract with the demanding party. Generally, a letter will carry a threat to pursue further legal action if the recipient does not respond. This is an effective process for the demanding party. Moreover, the recipient will likely experience legal and financial peril if they do not respond appropriately. 

The recipient is issued a letter following a prolonged period of inaction. This period will extend beyond the due date of payment. The letter consists of a payment deadline. These periods of repayment vary. Generally, at least 14 additional days is provided for repayment.

What are the Advantages of Sending a Letter of Demand?

As previously stated, these letters are highly effective. Here are some advantages to sending a letter of demand:

  • Clear instructions are provided; that legal action will be taken if payment is not received.
  • Providing the recipient with another opportunity to repay their debt may avoid any unnecessary legal proceedings. This is especially the case if the recipient merely forgot to make the payment.
  • If further legal action is taken, the existence of a letter of demand will be looked upon favourably by courts.
  • Relatively inexpensive compared to the time and expense involved in taking court action to recover debts.

How do you write a Letter of Demand?

Assuming that the letter is in relation to the repayment of the debt, it should include the following:

  • The date of issue.
  • The other party’s name and business address, as well as your own.
  • The exact amount owed by the recipient.
  • The date that the payment fell due.
  • What the payment relates to (the particular goods or services provided).
  • A copy of the invoice (make sure it includes the amount owed and the process of payment).
  • Any other relevant documents relating to the money owed (provide documents that support your claim).
  • The new amount owed by the recipient (include any interest, or late penalty fees).
  • The time frame for repayment.
  • The payment process.
  • A warning to take further legal action.

What if my Letter of Demand is Ignored?

You may lodge a Statement of Claim form if the amount owed on your letter is not repaid. It is important that you check your State Court website before submitting this claim. This is because the recoverable amounts and capping provision are different for each state. With this, filing a statement of claim is likely to result in heavy costs.

What if I Receive a Letter of Demand? 

If you receive a letter of demand, it is important that you do not ignore it. If there is a discrepancy in the amount due, you contact the debtee. However, it is always wise to seek legal advice, as letters of demand can be quite complex.

If you wish to pay, contact the debtee for further information, or follow the payment process provided. 

To Sum Up

A letter of demand is a viable option for a business looking to recover its debts. All businesses, or individuals, who readily lend money should be aware of how to draft this letter, as well as the consequences of not ignoring one.

If you need any assistance in drafting a letter of demand, our commercial lawyers are here to help. Just call us at 1300 337 997, or complete the form on this page.

About Daniel Katz

Daniel KatzDaniel is a legal intern at OpenLegal, placed in our legal content team. He is currently studying a Bachelor of Laws at the University of Technology Sydney. Daniel's interest lies in economics and media/startup law.

About Philip Evangelou

phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.