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40 politely-worded templates to get invoices paid

How to write a demand letter for outstanding debt | Chaser

How to write a demand letter for outstanding debt | Chaser

Is there anything worse than having a client who just won't pay? You do all this work for them and then… nothing! Doing a job costs you money and you have your own obligations to meet. We don't need to tell you why not getting paid is stressful!

Fortunately, the debt collection process gives you options. There is action and when you need to, you should take it.

If you've had enough of chasing up a bad debtor, you've come to the right place. This article will explain how to write a demand letter – or write what we will refer to as a "demand letter" or "payment demand letter." You'll learn what such a letter is, the evidence it should contain, and when you should file a case against a client or customer in court.

What is a formal demand letter for payment?

What exactly is a demand-for-payment letter? Essentially, it's when you present someone with evidence and a written request to pay the money owed. Anyone can send a demand-for-payment letter, so if someone owes you money, you have the right to ask for that payment without involving a lawyer (at least, not at first).

However, many businesses choose to have formal correspondence written up by their paid legal representative. It is generally perceived that letters written by professionals carry more weight. And, a demand letter for payment is a way of proving that you are serious and willing to take the matter further if necessary.

How it works

For example, you should only send the recipient a formal demand letter for payment once you have already sent multiple requests and reminders in writing. The demand-for-payment letter comes after you have made every effort to reach the other party.

Once the debtor receives the demand letter for payment, they have twenty-one days to make the payment or contact you to negotiate a payment arrangement. If you don't receive a response, that's when you're likely to need legal advice on the best way forward.

You could seek mediation, or if you really have to, you could take the matter to a full court or small claims court. That should only be an absolute last resort though. The court process can be long and difficult.

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What are the benefits of a formal demand for payment letter?

The benefits of a formal demand-for-payment letter are considerable.

Collect debt owned

The main benefit of a demand letter is that it helps you collect money owed to you without having to go through the hassle of filing in court. The recipient should take the notice seriously and take steps to repay any debt owed.

Low cost

A demand letter is also a low-cost strategy. It is often as simple as sending an email or putting a letter in the post. It is not expensive, like filing a lawsuit or accepting a settlement. A proper demand for payment simply asks the client or customer to pay you by the deadline.

Record evidence

Demand letters are also extremely valuable because they provide evidence of money paid to you. Having a document setting out the payment history with the recipient can assist in any future lawsuit.

Clarify your deadline for money owed

Demand for payment letters also states when clients and customers must pay their debt before you will file a lawsuit in court. Once they are in receipt of the document, there is no longer any ambiguity.

How to write demand letters

Writing a demand letter is a tricky business, but as long as it contains the correct information it will count. There are also no specifics on how the letter should be sent, which means you can send it as an email if you find that appropriate to your situation. However, the ultimate goal is to receive payment for the cost of the work rendered.

Here are some of the details a demand letter needs to include:

  • Your information and the debtors' information (contact details, address etc.)
  • The date when the debt began and the amount of money owed
  • Details and dates of any disputes relating to this payment
  • Description of the nature of the agreement and breach of contract
  • Outline previous payment reminders and attempts to collect the payment
  • The final due date for when the sum is to be settled by
  • Instructions on how to pay (such as your banking details)
  • The consequences should payment not be made (intended legal action)
  • Your personal signature
  • You should also attach copies of relevant documents (such as the invoice in question)

In a demand letter for payment, you should state the facts in a professional tone. Now is not the time to vent frustrations, or get personal or emotional.

You certainly don't want to sound threatening. Should you end up in court, for example, a poorly prepared demand letter could seriously hinder your case and your reputation.

However, when the situation is handled right, you may even come out of it with no hard feelings once the matter has been resolved.

Is it a good idea to write a demand letter email? There is no rule saying you can't send your demand letter as a document or an email. Most formal documents are hand-delivered or sent by registered post so that there's no doubt they've reached the right person. No matter how you choose to send it, you want to ensure that it will be read and taken seriously.

Sample demand letter for payment

When it comes to letters of demand, less is more. You want to keep the content as short as possible, only including what is absolutely necessary. Remember, your demand letter will be passed around and read by more than one person, especially if the matter does end up in court. And, a well-written professional tone will make a good impression on a small claims court judge.

Writing an effective demand letter for payment is never easy. Don't rush it. Make sure you think it through. While you don't want your letter to include unnecessary details, you must make sure you haven't left anything out when demanding payment. A demand letter serves as a vehicle to establish facts, set out your contract and evidence, document any proof of payments so far, and provide notice.

Here is a sample free demand letter that you can adjust to fit your own situation:

[Your full address and business contact details]

[The debtor's contact details]


Dear [include the debtor's name]

RE: Outstanding payment due on invoice [include invoice number]

We have tried to reach a settlement with you regarding the payment due to us. As you will remember, the terms of our agreement were [that we provide X and you pay Y]. However, by non-payment, you have failed to uphold your side of the contract.

You will find a copy of the original invoice along with proof of the signed work agreement enclosed herein.

Reminders were sent to you [on these dates]. Additionally [include name] tried to visit you in person to discuss a payment arrangement [on this date, at this time] but did not find you available. Unfortunately, as we have not received acknowledgement from your side, and we are still expecting to collect our payment we have no choice but to take this matter further.

The original invoiced amount owed was: [include amount] Accumulated interest (according to the agreed-upon terms) comes to: [include amount] The total amount outstanding is: [include amount]

You can settle your debt to us by making an EFT deposit to our bank account [provide banking details].

Please be advised that if you do not respond and settle the outstanding amount by [date], we will pursue legal action against your company.

We would appreciate your due attention in this regard.

Yours sincerely, [Your signature, name and designation]

Writing a demand letter for payment is never easy. Don't rush it, make sure you think it through. While you don't want your letter to include unnecessary details, you must make sure you haven't left anything out.

If you are not sure how to write a demand letter for payment, follow an example like the one above. The recipient should respond to you if they expect you will pursue them for money through legal proceedings.

The demand letter should be sent by certified mail with a return receipt requested. Sending the letter with a return receipt request means the recipient will send their signature back to you on a specific date.

As a service provider, you have the right to impose whatever deadline on payments you want. Therefore, it is your decision when you write your last notice to the non-paying party to demand they pay you and resolve the issue.

What happens next

You might be prepared for battle, but you never know how your letter might be received. Once you've sent your demand letter for payment there are three possible outcomes.

  1. Your demand is accepted by the other party - This is the best-case scenario where the debtor comes to the party and meets your demands.
  2. A counteroffer - The debtor acknowledges your demands and the outstanding balance but doesn't accept all of them and negotiation begins. If they are enduring financial hardship, they may require instalment payments or a payment plan. They may also push for a settlement where they pay some of what they owe, but not all. (This may occur if the other party believes services rendered breached your contract because they were of low quality).
  3. Refusal - The worst-case scenario happens when the terms of your letter are refused and you have to follow through with legal action. If the recipient owes you money in your contract but they ignore your request for payment, you may have to take legal action.

Needless to say, chasing bad payers is quite a process. You can take on the effort yourself, but you might find it more effective to involve the skills of a professional. That way you don't have to stress about all the fussy legal details and creating your own properly worded letter.

Although there is another option, you could choose to outsource your credit control. That way all your payment reminders, follow-ups, and even demand letters are taken care of right from the get-go.

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Outstanding debt

Getting paid is a top priority. You need your cash flow and there's nothing worse than losing sleep because of outstanding funds. You've worked hard to establish your company and you're absolutely entitled to expect to receive the money due to you.

Sending out a strong demand letter might not be pleasant but it could mean saving your company. A demand letter for payment sends out a strong signal that you are ready to commence legal proceedings or may file a legal claim for services rendered. It's a way of showing customers that if they don't pay, you may engage in a court lawsuit to resolve the issue.

If you need help collecting your outstanding payments, Chaser has all the credit control resources you need. So you can stop worrying about your bad payers and start focussing on the good ones!

You can test Chaser with a zero-obligation free trial here

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