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Writing a Letter of Demand

Writing a Letter of Demand is a crucial step for businesses and individuals seeking to recover outstanding debts. This article will provide you with comprehensive guidance on crafting an effective letter of demand, particularly for those in the construction industry. By following our advice, you’ll enhance your chances of receiving the payments you’re owed without resorting to costly legal action.

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Table of Contents

What is a Letter of Demand?

A letter of demand is a formal written request from a creditor to a debtor, seeking payment or action to rectify a breached obligation. Typically used in cases where payment has been significantly delayed, this document serves as both a reminder and a warning to the debtor.

In the construction industry, a letter of demand enforces the right to payment under the Security of Payment Act, offering a cost-effective solution for debt recovery. By sending a well-crafted letter of demand, creditors can assert their rights and potentially avoid lengthy and expensive legal disputes.

Purpose and Benefits of a Letter of Demand

The primary purpose of a letter of demand is to resolve disputes, such as unpaid invoices or breaches of contract, without resorting to court involvement. This approach offers several benefits, including potential cost and time savings for both parties. 

By clearly outlining the issue and the expected resolution, a letter of demand can open a dialogue for negotiation and promote a fair outcome. Applicable across various industries, this method is particularly valuable for contractors and business owners seeking timely payments while maintaining professional relationships and avoiding lengthy legal battles.

When to Send a Letter of Demand

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:

letter of demand

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 could to get the electricals fixed quickly. He was able to finish the work 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.

Before writing a letter of demand, consider the following steps:

  1. Review the situation: Ensure you have made reasonable attempts to resolve the issue informally, including following up on any previous communication or payment arrangements.
  2. Gather documentation: Collect relevant information, such as contracts, invoices, or other evidence supporting your claim.
  3. Use a clear and professional tone: Keep your language straightforward and concise, avoiding legal jargon.

Writing the letter:

  1. Begin with your full name, date, and contact details (including phone number and email address).
  2. Address the letter to the debtor, including their name and business address.
  3. Describe the services provided or products delivered, and reference any agreements or contracts.
  4. State the amount owed, including any relevant invoice numbers, dates, and payment terms.
  5. Specify a reasonable due date for payment, considering the nature of the debt and any previous agreements.
  6. Provide payment options, such as bank transfer or cheque, and include relevant payment details.
  7. Attach any supporting documentation, such as contracts or invoices, to reinforce your claim.

Consequences of sending a letter of demand:

Be aware that sending a letter of demand may impact your business relationship with the debtor. It could also potentially escalate the situation, leading to legal action if the issue remains unresolved.

Handling debtor responses:

  1. If the debtor agrees to pay, confirm the payment arrangement in writing and follow up to ensure compliance.
  2. If the debtor disputes the claim, assess their response and consider negotiation or mediation to reach a resolution.
  3. If the debtor fails to respond or refuses to pay, consult with a legal professional to discuss further options, including the possibility of pursuing legal action.

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.

Letter of Demand Template

[Address]

[It is best to send the letter by Express post to the registered business address.]

Dear Sir,

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.

Regards,

[Your name]

What is the Importance of a Letter of Demand?

Your client may not realise how much money they owe you. In some instances, they may have forgotten it or have 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.

Who Can Help You Write Your Letter of Demand?

If you need assistance writing a letter of demand, consider consulting a construction lawyer with expertise in debt recovery

John Dela Cruz, the principal lawyer at Contracts Specialist, has over 10 years of experience in construction law and can guide you through the process. Reach out to John today for professional advice and support in crafting a compelling letter of demand.

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