Letter of Demand.
A letter of demand is a formal written demand to repay debt within a certain time period. It enables the creditor to give the debtor notice on a debt that has gone unpaid despite prior attempts by the creditor to collect the debt (including any interest and other fees).
The majority of the time, sending a letter of demand is an effective and affordable approach to settle the conflict without having to go before a judge or arbitrator.
How come I should send a Letter of Demand?
Letters of Demand show the seriousness with which the situation is being regarded and give the recipient one last opportunity to take appropriate action to stop the situation from getting worse (i.e. that the next step is litigation).
Although it is not required to deliver a Letter of Demand prior to starting proceedings, courts and tribunals prefer to see that you have tried to settle a disagreement amicably before going to court. You might not be able to recoup the costs of the litigation from the opposing party if the litigation is started without first sending a letter of demand. There may be large upfront fees associated with starting proceedings, depending on the nature of the dispute. In this regard, a letter of demand, to the extent it is capable of doing so, constitutes a financially advantageous way to settle a disagreement. Another benefit of a letter of demand is that it may lead to the discovery of a defense to the claim that the claimant was previously unaware of (thus allowing the claimant to prepare for that defence in any ensuing litigation, or even allowing the claimant to abandon the claim without incurring litigation costs should the defence be genuine).
Considered a “weapon of last resort,” Letters of Demand should only be used under extreme circumstances.
Should I send a Letter of Demand?
While letters of demand should be a routine component of any business’s (or person’s) credit control procedure, they should only be used after more cordial attempts to obtain the necessary action or payment have been made.
Sometimes all it takes to get payment on an unpaid tax invoice is a simple phone call or email reminder. The recipient of the invoice will probably appreciate the informal approach and being given the chance to correct the error if payment of the invoice had simply been accidentally missed. On the other hand, sending a letter of demand without first discussing the issue with the person who received your invoice is unlikely to be welcomed.
We advise skipping the cordial procedures and moving right to a letter of demand when a third party has expressed an intention to not pay your tax invoice and you do not believe any issue raised with the invoice to be legitimate or genuine.
What alternatives are there for a response?
When you receive a letter of demand, there are a number of defences you can consider, but how you respond will depend on the situation.
You can try to negotiate a payment arrangement with the creditor “without prejudice” if you don’t contest the claim. This implies that, should negotiations fail, the creditor cannot use any statements you make in court proceedings as evidence against you.
If you reject the accusations levelled against you, you can answer by clearly stating why you do not agree with the accusation and are not required to abide by the demand. If the creditor does not agree with your refusal, they may file a lawsuit against you.
If you have questions regarding the claims made in the demand, you can write to the creditor and ask for more information and explanation.
In any case, you can ask for mediation to settle the conflict, but you should be aware that it won’t stop the creditor from filing a lawsuit.
Serving Letters of Demand on a debtor person or business is the initial step in any debt recovery process for a credit manager. The specifics of a debt owing to a creditor must be stated in a letter of demand.
Giving a debtor notice that a debt is due and payable and outlining the conditions under which it must be paid is a valuable and advantageous step for credit management. If a debtor ignores a letter of demand, a creditor may proceed without further warning against them, which may lead to court proceedings or the acquisition of a court judgment.
It is not as easy as merely mailing a debtor a note demanding money, though. A demand letter for the following should be succinct and clear:
- The amount owing;
- the party that is owed the loan;
- whom the obligation is owed to;
- any legal responsibilities relating to the debt;
- what the loan is related to;
- how the debt came about;
- the deadlines for making payments on the obligation.
Do you use lawyers to send Letters of Demand?
An excellent letter of demand can establish the groundwork for the creditor to be able to recover the debt quickly and affordably. A well-written letter of demand frequently results in the debtor making a full payment on the debt, engaging in negotiations with the creditor, or agreeing to a payment schedule.
You can personally write a letter of demand. However, depending on the debt’s specifics and the parties’ (if any) agreement, you might want to hire a lawyer to draught the letter of demand on your behalf.
The advantages of having a commercial lawyer write a letter of demand on your behalf could be as follows:
- A comprehensive analysis of your rights and obligations as a creditor will be given to you, along with a strategy for what will happen if the debtor defaults on the obligation after the letter of demand’s due date;
- In order to cover all legal bases, the letter of demand will contain all pertinent information and rely on any agreement you may have with the other parties;
- The letter of demand will be written in response to the particular conditions you face.
What follows the issuance of a letter of demand?
The debtor will have a set amount of time to pay the debt once a letter of demand has been sent and they have been given notice. The debtor has this period to pay off the debt in full, respond with justifications for their inability to do so, or make an effort to work out a payment arrangement with the creditor. There may be a number of legal options that can be explored to get the debt paid if a response has not been received within the allotted time.
To discuss the next steps with you, it is essential to hire the services of a commercial lawyer with experience in insolvency and debt recovery. These could entail engaging in court or tribunal processes, mediation, or negotiation.
What happens if a debtor ignores a letter of demand?
A letter of demand may occasionally fail to achieve the goals you had in mind. The debtor either disregards your communication or keeps delaying payment. If this occurs, you must decide the best course of action.
And a word of advice: when deciding your next course of action, you should weigh the cost of pursuing the matter further against the money you are entitled.
Consider whether you have given the debtor enough time to make the payment or react before moving forwards and disregarding the letter of demand. The recommended amount of time to respond to a letter of demand or make payment is 21 days (even if it is just part payment).
The relationship between you and your debtor is the second issue you should think about. Consider other choices if the relationship is worth maintaining and the letter of demand hasn’t already harmed it.
Next steps
If you need help with Letters of Demand, regardless of your location in Australia. AustraliaLawyers can connect you with the best business lawyers in major cities in Australia including, Parramatta, Perth, Newcastle , Canberra, Geelong, Adelaide. & Many more cities.
