Help! My business is owed money. Should I send a Letter of Demand?

What is a Letter of Demand?

A Letter of Demand is a letter that is sent to someone when they owe you money. It is a formal way to demand that a debt be repaid and is usually sent as the final step before formal legal action is commenced.

A Letter of Demand:

  • outlines the amount owed to you, what it is for and when you want it paid;
  • tells the debtor how they can pay;
  • could give you alternative ways to recover the debt including offering the debtor the ability to pay by instalments, or offering payment of a lesser amount than is owing to encourage repayment; and
  • includes a warning to commence legal action if the debt is not repaid.

Is There Anything I Need to do Before Sending a Letter of Demand?

Before sending a Letter of Demand it is important that you have already approached the debtor to remind them to repay the debt. Often one or two friendly “late payment” reminder letters should be sent first. These reminders should be polite and clearly outline your expectations for payment.

You could also try contacting the debtor via phone or email to remind them of the debt. A Letter of Demand is the final step you take before commencing legal action, so sending reminders first may help you preserve your relationship with the debtor.

What if the Debtor has disputed the invoice?

If the debtor has disputed the invoice, it is important that you address this with the debtor and try to work this through. Remember if you are selling products or services to consumers they have rights under the Australian Consumer Law to a refund, repair or replacement in certain circumstances where the consumer guarantees are not met. 

What do I do if the Letter of Demand is ignored?

If the debtor ignores your Letter of Demand, you can commence legal action against the debtor.   A lawyer can help you navigate this process in your relevant state of territory.

Is There Anything Else I Need to Know?

A Letter of Demand will be more successful, and useful for commencing legal action if it is supported by relevant documents. So, ensure you have access to documents such as tax invoices or contracts to prove the existence of the debt before creating a Letter of Demand.

Having a good set of terms and conditions which clearly sets out your payment terms also helps to ensure that you get paid on time.

Following your debts up promptly and dealing with any issues straight away will also help you to recover unpaid amounts.

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