Letter of Demand

What is a Letter of Demand?

A Letter of Demand can be sent to a person or organisation that has failed to make a required payment. In most cases, this letter may be used by service providers who have invoiced a client under a Service Agreement, but have not received payment from the client.

A Letter of Demand is often used as a final warning before commencing legal action for recovery of the debt. Before sending a letter of demand, service providers may wish to send more friendly reminders such as a Payment Reminder.

A Letter of Demand states how much money is being claimed, what it relates to, and when the payment must be made. It also informs the other party that if payment is not made by the date stated in the letter, then legal action may be commenced.

What is the difference between a Letter of Demand and a Cease and Desist Letter?

A Cease and Desist Letter, also known as a General Cease and Desist Notice has some things in common with a Letter of Demand, as both letters tend to be used before commencing legal action. However, a Cease and Desist Letter is sent to an individual or business that is engaging in unwelcome or illegal behaviour. The letter acts as a formal request that the recipient stop ("cease") and not continue ("desist") this behaviour. If the recipient of the letter fails to comply with these demands, then the sender may consider legal action.

A Letter of Demand, while also used before commencing legal action, does not usually relate to unwelcome behaviour. Instead, it is a demand for payment, for example, if a business has not been paid by one of its customers.

Is it mandatory to have a Letter of Demand?

No. But a Letter of Demand provides a useful structure to enable the sender to outline their concerns in a clear and direct manner. Many people find that it is an effective way to get the debt paid.

In addition, if the matter ever proceeds to court, then in many cases, the court will want to consider the past conduct of the parties, and whether there have been any attempts to resolve the matter outside of court. If the sender is able to show that they sent a Letter of Demand but it was ignored, the court may take this into account when determining how reasonable and cooperative each party has been.

What has to be done once a Letter of Demand is ready?

Once the letter has been finalised, it can be sent (together with any relevant attachments) to the other party.

In order to prove that the letter was sent, it may be helpful to send it by registered post.

The sender should also make note of any new due date for payment. If payment is not received by that date, then the sender will need to decide what follow up action to take. This could include contacting the debtor again, engaging a debt collector, or comencing legal action.

Which documents should be attached to a Letter of Demand?

It is not mandatory to attach anything to a Letter of Demand. However any relevant evidence of the debt can be attached. For example, this could include copies of overdue invoices, copies of loan agreements, or other similar documentation.

What must a Letter of Demand contain?

A Letter of Demand should contain:

• The full names and details of the sender and the recipient;
• The amount of the debt;
• A reminder about what the debt relates to;
• The date the debt was due to be paid;
• A demand that the debt be paid, and a new due date for payment;
• A statement that legal action may follow if the debt is not paid by the new due date;
• Payment information such as relevant bank account details can also be included if the sender wants to include them.

Which laws are applicable to a Letter of Demand?

Any organisation that is involved in pursuing a debt has various legal obligations. These include obligations to avoid physical force, to avoid unreasonably harassing the debtor, and to avoid providing misleading information about the nature of the debt. Further information is available from the website of the Australian Competition and Consumer Commission.

If the money being claimed relates to the provision of goods or services, or some other agreement between the parties, then general principles of contract law, as provided by the common law, will apply.

If the sender provides goods or services to the public directly (rather than to a company) then the Australian Consumer Law may also apply.

If payment is still not received after this letter has been provided, and legal proceedings are commenced, then various other legislation in the relevant state or territory may also be relevant. For example, legislation in relation to the relevant Magistrates Court or Small Claims Tribunal may apply. If the letter is used in court as evidence, then legislation in relation to rules of evidence in the relevant state or territory may also apply.

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