What is a Letter of Demand?
Updated on Jan 05, 2023 • 4 min read • 985 views • Copy Link
What is a Letter of Demand?
A letter of demand is usually sent when a person is owed money and has tried unsuccessfully to get payment. It is usually the last step taken before commencing legal proceedings. A letter of demand states the amount owed, what it is owed for and when the amount needs to be paid. It often includes a warning that legal action will be taken if the money is not paid by the date nominated.
While sending a letter of demand is sometimes necessary, it can also inflame a dispute and damage a business relationship. This article outlines the situations where you may want to send a letter of demand and what you should consider prior to sending it.
A letter of demand is most commonly used when a party has failed to pay money they owe you. In this situation, prior to resorting to sending a letter of demand, you should always send one or two reminder letters.
A reminder letter gives your debtor the benefit of the doubt as they may simply have forgotten to pay the invoice, had a temporary shortage of funds, or there may have been a misunderstanding.
It is always preferable to obtain payment without resorting to a letter of demand as this allows you to preserve the business relationship.
Work or goods are faulty
A letter of demand can also be used when a party has done work inadequately and further work (or some other remedy) is required to rectify the problem. For example, if you paid a plumber to install a bath but a few days later, the bath started leaking, you could ask them to come back out and fix the job. If this request was refused, you could use a letter of demand to require them to carry out their obligations.
In this situation, it is a good idea to summarise the applicable law and list how the other party is in breach of their obligations. It is important to make it clear how you want the other party to remedy their breach. This may be by completing the job or by providing a refund. If you are seeking a refund, you must provide evidence of payment.
Alternative dispute resolution
Prior to sending a letter of demand, consider inviting the other party to alternative dispute resolution (ADR). ADR will give you the opportunity to try to arrive at a mutually acceptable resolution and is more likely to leave you on friendly terms with the possibility of doing business again in the future than a letter of demand.
Is the letter accurate?
If you are going to send a letter of demand, it is important that everything you put in your letter of demand is accurate. If the other party does not comply with your demand, you may decide to start legal proceedings. If you do so, you will need to present the letter of demand as part of your statement of claim. For this reason, it is crucial that the information in the letter of demand is accurate and consistent with what you are claiming in court.
Is the letter complete?
A letter of demand should include the following:
- Details of the amount owed, the work or goods the money is owed for and the date payment is demanded by;
- Copies of documentation such as a contract, invoice, reminder letters and any other relevant correspondence;
- Details of any legal action you will consider taking if your demands are not met (but should not mention any action that you aren’t prepared to take).
The letter should also be:
- Polite and professional
- Signed and dated
You should keep a copy of the letter and attachments for your records as you will need it if you initiate legal proceedings.
Sending the letter of demand
It is a good idea to send your letter of demand by post as well as by email to ensure the other party receives it. If you have stated your intention to commence legal action if your demand has not been met by a specified date, you need not wait for a response from the other party to take legal action after that date.
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