Making a letter of demand is one of the ways to recover debts especially in service-providing industries. For those in the construction industry, this can be an immediate resort.
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A letter of demand is a formal correspondence sent by one party to the debtor party requesting for payment or other specific actions based on a right that has been breached.
You may write a Letter of Demand and send it to the person or company who owes you money. This is done when it has taken a long time already for the debtor to pay you. The letter of demand serves as the reminder or the warning letter for that debtor to give you the money.
In addition, writing a letter of demand enforces the right of the construction service providers to demand for payment in accordance with the Security of Payment Act. It gives the person owed an easy and inexpensive way to demand for his payment.
Letters of demand are used to recover payment in different situations and not just in the construction industry. It can be used to recover unpaid wages, invoices, rents, loans, and deposits. But in the context of contractor/business owner, the situation could be illustrated as something like the example below:
Kenny is a 40-year-old subcontractor based in Sydney. He received a call from a business owner (Owner) who urgently needs him to fix his electricals. They both discussed the problem and came up with an agreement on resolving it. Kenny told his client about the price which also includes the expenses for extra materials needed to fix the electricals. The Owner agreed as he is desperate to have his electricals fixed immediately. The parties also agreed on the due date for the Owner to pay Kenny.
Kenny did everything he can to get the electricals fixed quickly. He was able to finish the works properly and correctly. However, when the due date for the payment came, he did not receive anything from the Owner. He called up the Owner and he was promised that he would get paid the following week. Kenny agreed and waited until next week. But when the time for payment came again, Kenny did not receive anything. He phoned his client again but this time, he could no longer reach him. Kenny then decided to go to his client personally. He was told the same promise of getting paid again but it never happened.
It is in this situation that a letter of demand can now come into the picture for Kenny to enforce his right to demand payment from the business owner.
TIP: When you send your letter to your debtor, make sure that you keep a proof that you have mailed your letter. This could be evidence you can use in case the situation escalates into a legal dispute.
[It is best to send the letter by Express post to the registered business address.]
We refer to our outstanding payment claims which are overdue.
[insert details of whole outstanding invoices that have not been paid providing sufficient information on the claim. Examples: invoice number, invoice date, invoice amount]
This letter is not a progress claim pursuant to the Building and Construction Security of Payment Act 1999 (NSW).
If you fail to settle the outstanding debt [total debt inclusive of GST] within 7 days of receipt of this demand, we will commence enforcement action without further notice.
We will rely on this letter as to costs.
Your client may not realise how much money they owe you. In some instances, they may have forgotten it or has a different reason for not being able to pay immediately. Thus, a letter of demand lets your client know how much they need to pay you.
For legal reasons, this could serve as solid proof that you tried recovering your money from your client. This could be an immediate resort for contractors, subcontractors, and suppliers before even deciding to take their case to the court. It is also advisable that two or three letters of demand are sent before taking legal action.
Of course, for payment problems relating to building and construction, it is best to ask the expertise of a construction lawyer.
Contracts Specialist principal lawyer, John Dela Cruz, can help you with your letter of demand. With his extensive knowledge of debt recovery and over 10 years of experience and practice in construction law, you can definitely be confident that you are in good hands.
First consultation is FREE.