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Many businesses that are owed money often wonder how to write a letter of demand and whether it is worthwhile. Let me tell you – it is!

A letter of demand is a formal letter demanding the repayment of a debt. A letter of demand is sent from one party to another when the first party wishes to claim money they believe the second party owes to them.

The letter states the amount that is outstanding and owing to the creditor, a timeframe for the debtor to take action and advises that further measures (including starting recovery proceedings) may be commenced without further notice if the debt is not paid.

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Author: Farrah Motley, a commercial lawyer with experience in writing international supply agreements and helping Australian budinesses to reduce legal risks

Issuing a letter of demand is the first official step when you decide to use the legal system to settle a debt in Australia. Prior to writing a letter of demand, it’s important to make sure that you have already sent the first and second reminder letters before you lodge a claim with a court in Australia.

However, a letter of demand is only used for the goods and services provided but not for the money that is owed because of a loss or damage suffered by the person or company.

In this article, we go into detail on the topics listed below. You can skip ahead to the relevant topic by clicking the link:

  1. When to send a letter of demand
  2. Inclusions in a letter of demand
  3. What to consider while sending a letter of demand
  4. Benefits of a letter of demand
  5. What if a debtor doesn’t respond to a letter of demand?
Letter of Demand

When to send a letter of demand

A letter of demand:

  1. warns the debtor of the creditor’s intention to take further action unless the debt is paid and gives them a final opportunity to pay the outstanding debt

2. can be used as evidence that the creditor has taken steps to try to resolve the matter and recover the money owed before commencing legal proceedings

If you are owed money and the debtor has either not responded to your invoices or has refused to pay them, your next step may be to send a letter of demand.

Inclusions in a letter of demand

A letter of demand should state several factual matters, including the following:

  • the amount that is owed
  • the date and time by which the debt must be paid
  • how the debt is to be paid
  • the date of the letter of demand
  • a detailed description of the debt, including the circumstances leading to the debt and an explanation of the goods or services in respect of which the debt is owed It means stating the reasons for the debt and a brief explanation of the goods and services provided
  • the consequences of failing to comply with the letter of demand
  • that the creditor reserves all their rights

The letter must also include proof or evidence about the existence of the debt. This may take the form of an invoice or an agreement regarding the goods and services that were provided.

It is important to ensure that a letter of demand is capable of being complied with by the debtor, without the need to ask anything further (for example, if no means of making payment have been provided).

The letter of demand should be factual and professional and must be signed and dated. A copy of the letter and all attachments must be kept for your record if in case you proceed with any legal action.

The letter must also mention the date by which the debt should be repaid, the mode of payment and the necessary action to be taken in case the party fails to pay the debt on the said time. It is recommended that you avoid addressing any allegation that you have done something wrong.

Letter of Demand

If the debtor has a genuine dispute, they can raise this formally by responding to your letter of demand.

You should also ensure that you send the letter of demand by a traceable method so that you can be certain the debtor has received it. For instance, if you send it via email, request a read receipt or send it by registered post.

What to consider while sending a letter of demand

Unpaid Account

This is the most common scenario of generating the letter of demand. When a person fails to pay the amount due to you, a letter of demand is generated. However, in this kind of situation, before sending a letter of demand, 2 – 3 reminder letters should be sent. This reminder letter gives the debtor the benefit of doubt, as non-payment may be due to a mistake. Alternatively, if the debtor is experiencing financial issues, you can discuss a payment plan with them.

Sending a letter of demand is likely to have a serious and adverse impact on the relationship between the creditor and the debtor. For this reason, it is important to ensure that every avenue to recover the funds has been explored before sending a letter of demand.

Work or Goods are Faulty

The failure to correct poor workmanship or replace faulty goods are also common reasons to issue a letter of demand.

Provided that certain other legal requirements have been met when one party delivers faulty or inadequate goods or services and to rectify that fault, additional work and/or expenditure is required, the creditor can issue a letter of demand. In these kinds of situations, it is recommended to outline the applicable law and how the other party breached its legal obligations.

In the letter, you must state how you want the other party to rectify their fault or breach. It may include completing a particular job or requesting reimbursement.

Letter of Demand

Benefits of a letter of demand

  • A letter of demand gives the debtor an additional opportunity to make the payment before a creditor takes more formal steps to recover the money.
  • Letters of demand operate as advance notice informing debtors of a creditor’s intention to proceed with legal action if the repayment is made within the time set out in the letter.
  • Letters of demand also prevent both the creditor and the debtor from engaging in expensive legal action and damaging their business relationship.
  • Letters of demand can also serve as evidence that the creditor has made attempts to settle the dispute prior to legal proceedings.

Letters of demand can be an effective way to encourage debtors to pay outstanding amounts, due to the uncertainty, stress and cost associated with being taken to court for outstanding debts.

What if a debtor doesn’t respond to a letter of demand?

Sometimes, a letter of demand does not accomplish what you thought it would. The debtor either ignores your letter or continues to refuse to make payment. If this happens, you need to consider the best way forward.

And a word to the wise – your next step needs to take into account the expense of taking the matter further and comparing this to the amount you are owed.

But before taking that next step and forgetting about the letter of demand, consider whether you have given the debtor sufficient time to make the payment or respond. 21 days is considered to be the ideal time for responding to a letter of demand or making payment (even if it is just part payment).

The second thing you should consider is the relationship between you and your debtor. If that relationship is worth preserving and the letter of demand hasn’t already damaged the relationship, then consider other options.

Can you resolve the dispute with the debtor in an amicable way? If you can’t, good legal advice is essential.

Letter of Demand

How can Prosper Law help?

If you need a lawyer to prepare or respond to a letter of demand in a cost-effective way, contact us today!

We can provide you with a fixed fee quote for legal services.

Want to continue reading? Check out An Australian Guide to Royalties.

Farrah Motley | Legal Principal

PROSPER LAW – Australia’s Online Law Firm

M: 0422 721 121



A: Suite No. 99, Level 54, 111 Eagle Street, Brisbane, Queensland Australia 4000

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