Letter of Demand: What is it and when it is needed

As a business owner, you should be familiar with what a letter of demand is and when it should be used. Apart from the fact that it’s always important to learn as much as you can about anything related to your business, you’re almost certain to experience the need to issue a letter of demand to a customer at some point in time.

A Letter of Demand is a formal demand to inform a debtor that legal action will commence if the debt is not settled as outlined. For example, the letter may demand that the third party fulfill an agreed contractual obligation or it may be a request for the said party to desist from doing something. An example of the latter is a situation where the third party is infringing on the copyright of the person writing the letter of demand. However, the most common reason for writing a letter of demand in business is to request payment for a debt obtained by the third party.

Letter of Demand – What information is included?

A letter of demand is expected to be written following certain guidelines. This generally includes the following information;

  • The amount of money owed
  • An explanation of the debt (the form in which the debt was obtained)
  • Detailed calculations that show how the creditor arrived at re-conciliated amounts.
  • If applicable, references should be made to any previous promises made by the debtor to clear the debt.
  • A deadline for when payment of the debt needs to be made
  • Details of consequences that may result from failure to pay the debt on or before the deadline.

You may also add additional information in the form of relevant documentation such as contracts, tax invoices, agreements or previous letters sent out to show evidence that you have taken all necessary steps to recovery money owed before arriving to this point. In like fashion, if your letter of demand is targeted at a reason other than collection of debt, the most important thing is to provide all important information such that the receiver is completely clear regarding what is expected of them.

Why write a letter of demand?

A letter of demand basically gives the recipient a final opportunity to make amends to whichever issues needs to be addressed. Dispute cases in business tend to be handled with levity if the affected party does not show a certain level of ruthlessness or seriousness. A letter of demand is formal and it makes it clear to the other party that you are taking the situation very seriously.

Even though it is not absolutely compulsory to write a letter of demand before taking further action (such as litigation), any presiding judge in a court would be even more inclined to rule in the affected party’s favor if there is evidence to show that prior steps had been taken to handle the situation. However, a letter of demand is serious business and you should not take it lightly or misuse it. Consider it as a sort of “last resort” if other methods to reason with the other party are proving abortive.

If you do decide to send a letter, here are some other things to note:

  • If you’re sending the letter to an individual, it should be sent to the person’s mail or postal address.
  • If the recipient is a company, be sure to address the letter to the appropriate office within the company. You should also get the company’s business address or mail address and send a copy there too.

If you cannot write the letter by yourself, you can reach out to one of our professionals to handle it for you. Best of luck!


About the Author
Marshall Freeman is Australia’s leading professional debt collection agency. Through servicing over 20,000 businesses throughout Australia for over 15 years, they have gained a reputation as an industry leader in providing sound financial information, knowledge and education for small and medium sized enterprises. With a strong track record in cash flow management, they often key note speakers at leading conferences around the world with a key focus on mentoring future debt collectors and educating businesses on key debt recovery fundamentals to support commercial growth.