A letter of demand only works if it leaves the debtor no room to stall. A vague demand invites a request for more information, or silence. A properly particularised one makes the debt, the amount, the deadline and the consequences impossible to misunderstand.
This guide sets out the eight elements an effective letter of demand should contain and the drafting mistakes that most often stall payment. For what a letter of demand is and when to instruct a solicitor, see our letter of demand lawyers page.
Why Timing Matters
Every week an unpaid invoice sits unaddressed, recovery gets harder.
Debtors triage. A creditor who has gone quiet moves to the bottom of the pile, behind the creditors applying pressure. Delay also tells the debtor how seriously you regard the debt, and that impression is difficult to reverse later.
A debtor in financial trouble does not stay still. Assets get moved, the business gets restructured, the company gets deregistered, and other creditors get in first. By the time a slow creditor acts, there may be nothing left to recover from. Limitation periods also run in the background, and the records you will need, including emails, delivery dockets and file notes, become harder to assemble as time passes and staff move on.
The demand is the step that stops the drift. It puts a date on the obligation and moves the matter from an accounts question to a legal one.
1. Creditor Details and Contact Information
Include your full details and a clear method of reply, so the debtor can respond, query the amount or propose an arrangement without delay. A demand that does not tell the debtor how to pay or who to contact creates an excuse for inaction.
2. The Correct Addressee
Address the letter to the debtor by their correct legal name. Where the debtor is a company, address it to the appropriate officer and send it to the company’s registered address as recorded with ASIC.
3. Particulars of the Debt
Set out clear particulars of the amounts owed and why they are owed, supported by the relevant supply contracts, agreements, correspondence, representations and invoices.
State the date each debt became due. Where there are several invoices, identify each one rather than presenting a single consolidated figure.
4. Interest and Additional Charges
If you are claiming interest, fees or other charges, state the amounts and the basis on which they are claimed. Interest may be recoverable under a clause in your contract or trading terms.
5. A Clear Calculation of the Amount Owing
Provide a breakdown showing how the total has been calculated: the principal, each invoice, any interest, any charges, and any payments already credited.
A single lump sum with no working invites dispute. A breakdown the debtor can check against their own records invites payment.
6. A Payment Deadline
Specify the date by which payment must be made, and the required method or form of payment where relevant. This timeframe is usually 7 to 14 days.
The deadline should be firm and dated, not expressed as a number of days from an unspecified starting point.
7. Consequences of Non-Payment
Explain what happens if the debt is not paid, or is only partly paid, by the deadline, including the creditor’s rights, the intention to commence proceedings, and that legal costs may be sought if the matter proceeds.
8. A Written Undertaking, Where Appropriate
Where the parties have negotiated a repayment arrangement, or where you want the debtor’s agreement recorded, include an undertaking for the debtor to sign confirming their agreement to the repayment terms and the obligations set out in the letter.
An undertaking converts an informal assurance into a documented commitment. It is particularly useful where the debtor has asked for time or proposed instalments, because it removes later argument about what was agreed.
Common Drafting Mistakes That Stall Payment
A letter of demand can be written by the creditor. Where self-drafted demands fail, it is usually on one of these points:
Sending it to the wrong entity or address. A demand addressed to a trading name rather than the company, or posted to an old address, may never reach the person who can authorise payment, and can create argument later about whether the debtor was properly put on notice.
Claiming interest with no entitlement. Adding interest without a contractual basis gives the debtor an easy point to attack, and tends to produce a reply disputing the whole amount rather than a payment.
Figures that do not match the documents. If the amounts in the letter do not reconcile with the invoices and contract, the demand becomes the debtor’s argument rather than yours, and a document the other side can rely on later.
A deadline with no date. “Within 14 days” without a start date gives the debtor room to argue about when time expired.
Overstated consequences. Threatening action the creditor has no intention or ability to take is usually recognised as such, weakens the letter, and can cause problems if the matter proceeds.
Accepting a promise without recording it. A verbal agreement to pay in instalments, with no signed undertaking, leaves the creditor arguing about what was agreed if the payments stop.
Each of these is avoidable, and each costs time you may not have.
How the Debtor Might Respond
Once the demand is issued, the debtor is on notice that payment is required within the stated timeframe. Common responses are:
- payment in full;
- a proposal to pay by instalments, or an offer of another form of consideration to satisfy the debt;
- a dispute as to the whole or part of the debt, with reasons; or
- no response at all.
- Each calls for a different next step, and what you say in reply can affect your position if the matter later proceeds.
Get Your Demand Right the First Time
A demand only gets one first impression. If the debt matters to your business, have it drafted and checked before it goes out, rather than repairing a weak letter after the debtor has already replied.
Citilawyers drafts letters of demand and undertakings for creditors across Sydney and New South Wales. For how we handle demands and what happens if the debtor still does not pay, see our letter of demand lawyers page.
Call (02) 9233 7737 for a free initial phone consultation. Have the invoices, the contract or supply terms, and any correspondence with the debtor ready when you call.
