A Letter of Demand is, as the name suggests, a notice in which one party demands payment from another. If the other party does not pay as required, the matter can proceed to litigation to recover the money.
A Letter of Demand is a document that a lawyer prepares on behalf of a client to require the other party to make payment or take some other legal action. If the other party ignores it, they face formal legal action such as being sued. This is usually the last step taken before commencing formal legal proceedings, and the recipient may perform their payment or other obligations out of concern about the formal legal action that would otherwise follow. It can save both parties time and money.
Case 1:
A runs a small business providing design services to various companies. One of her clients failed to pay a design fee of AUD 4,000 on time. A sent several emails to the client to chase payment, but received no response. She also tried to contact them by phone, but no one answered. A therefore sent a Letter of Demand requesting payment.
Case 2:
A year ago, B lent AUD 5,000 to his girlfriend’s younger brother, C, to pay a fine. At the time, C promised to repay the money before Christmas, but by July of the following year, C still had not paid it back. B and his girlfriend had since broken up, and C appeared to be avoiding him so as not to repay the debt. With no other option, B wrote a Letter of Demand and sent it to C.
Why send a Letter of Demand?
The importance of a Letter of Demand lies in notifying the other party that they owe money, and how much they owe. In some situations, the other party may have forgotten or not realised that they owe a debt. Sending a Letter of Demand clearly sets out the claim — namely, that if the other party does not repay on time, legal proceedings may be commenced. If the matter ultimately has to be resolved in court, the Letter of Demand serves as evidence that the creditor formally demanded repayment.
So how do you write a Letter of Demand?
When drafting a Letter of Demand, you should include the following:
Date
Full name
The sender’s contact details — such as phone or fax number, email address or postal address — so the other party can respond
The Letter of Demand should inform the other party of:
The fact that they owe a debt
The amount owed
The deadline for repayment
The method of repayment — whether by cash or bank transfer
The consequences — that if the debt is not repaid within the time specified in the letter, legal proceedings may be commenced
That they may be liable to pay the outstanding amount together with interest on the debt
After completing the Letter of Demand, you should also:
Make a copy for your own records
Send the original by post, fax or email, or deliver it to the recipient in person
Record where, when and how the letter was delivered
After the other party receives the Letter of Demand, they may generally
Acknowledge the debt and arrange payment promptly
Or deny that they owe the debt
Request further information
Negotiate to repay a reduced amount
Attempt mediation
Or not respond at all
If the two parties cannot reach agreement, the sender may then decide whether to commence legal proceedings.
A Letter of Demand can be used in many other types of disputes, including:
– Disputes between employers and employees (such as wages, working hours or other statutory entitlements)
– Disputes between buyers and developers or real estate agents
– Disputes between a company and its suppliers
– Disputes between companies over intellectual property
– Disagreements between neighbours
– Product or after-sales disputes between customers and businesses
– Disputes between shareholders of the same company
and so on
Final thoughts
If a Letter of Demand does not achieve the outcome you expect, you may need to take legal action or other steps. If you decide to commence legal proceedings, the first step in the process is usually filing a Statement of Claim. If you are involved in a dispute, it is still recommended that you consult a qualified lawyer.
