A demand letter can be used to formally request payment or other uses. It’s usually the last notice for payment that a debtor will receive and when it’s sent the party making the demand should phrase the letter in a way that encourages payment. This can take the form of an incentive like a reduced payment amount if the money is paid immediately or even threatening to send the amount owed to a professional debt collection agency which will affect their credit score. Small claims court may be a viable option if the amount is within the range that the state small claims court handles. It varies by state but the highest state is $15,000 and the lowest is $2,500 as of this writing.
What is a Demand Letter?
A demand letter can be described as a notice that asks for money, the possession or seizing of assets, or for the recipient to take action on a specific matter. The most common use case is when trying to collect money for an amount that is past due. Like a cease and desist letter, it’s usually the last step before legal action is taken.
What to consider when writing a demand letter
- It’s a formal notice so it’s important to use appropriate language and remain professional at all times
- Describe the issue with true and accurate information - do not add to or spin the facts
- Give a specific amount of time for resolution
- Let the recipient know exactly what needs to be done for a resolution EG tells them how much should be paid
- Attache the documents that serve as evidence of the demand
- It should not be misconstrued as extortion from the language used
An eviction notice is a type of demand letter (that usually demands payment) but it’s highly regulated and is different in each state. Depending on the reason for eviction, the tenant will have a certain number of days to vacate the property. For example, many states allow immediate removal of the premises when sending an eviction notice for illegal activity.
The process for creating and sending a demand letter
A demand letter is a balancing act. It’s important to get your message across but it’s also necessary to remain professional at all times. It should be concise, deliver accurate information, and inform the recipient about the potential consequences.
1. Determine how much to ask for
Each state has its laws regarding the amount that can be brought to small claims court. Depending on the nature of the debt, it may be best to keep the amount within the range stipulated by the courts. Within the letter, the creditor will need to describe the nature of the demand. This is supported by attaching copies of the invoices, the agreement documents, etc. Keep in mind that Fair Debt Practice laws prevent you from sending a demand letter for debts that don’t have supporting evidence. That means verbal and handshake deals may not be able to pass muster.
2. Get the accurate amount
Compile the relevant documents that help you understand the total amount of the debt. This is so that you know exactly how much to demand in the letter. Each relevant item should be itemized and, as mentioned previously, the relevant documentation included. Don’t limit your search to just invoices, consider the receipts for payments they’ve made in the past to prove that there was an established relationship.
3. Set a deadline for resolution
All demand letters should have a specific date or timeframe for the issue to be addressed. This is usually 30 days, but depending on the debt, it can be as little as five days. When you’re finished drafting the letter using our demand letter creator which you can access on this page, send it to the recipient via certified mail. Only use the United States Postal Service for this. You can also send it via email to further emphasize the severity of the situation.
4. Take legal action
If there is no resolution or no response from the recipient of the letter then it may be necessary to take legal action to recover the debt. Small claims court can handle it if the amount is less than a specific amount which varies by state. After filing a case, a lawsuit will commence for a judgment to be levied against the person leading to a settlement. Depending on the contract signed, the debtor may also be responsible for attorney fees. If the amount is more than what can be handled by small claims court then it may be necessary to take the case to county circuit court.
5. Collect payment
If, on the other hand, the debtor responds in a positive manner, you can go about collecting payment in whichever way you’ve settled.
If in agreement, the payor can provide payment immediately. However if the issue involves Small Claims court, this could result in a Settlement which will entail additional steps.
6. Breach of contract demand letter
These are designed specifically for when a contract has been breached. The breach of contract demand letter outlines the breach and how the offending party can get back in compliance. Depending on the severity of the breach, it may be rectified through a single letter or legal action may need to be carried out.
7. How long should a settlement take?
This can vary widely depending on the issue at hand and the parties involved. If it’s something like rent payments then it can be completed in less than six weeks. If it’s a high-value business deal then it can take months for a settlement to be reached.
A rule of thumb to work with is having both parties come to the table to begin discussing the settlement within four weeks. If that’s not done then the creditor may start legal proceedings against the debtor.
Sample demand letter
Official Demand for Payment (sample letter)
John Doe
Feel Good, Inc.
22 Middleton Rd.
Atlanta, GA 12345
(222) 222-2222
James Worthy
1 Misc Lane
New York, NY 10562
May 1, 2021
Dear James Worthy,
The letter is a formal demand for payment of the outstanding balance you owe to Feel Good, Inc. for the amount of $2,150.
On March 29, 2021, you received massage services at 1 Misc Lane. Payment for the services was due on April 14, 2021. As of the time of writing this letter, the payment has been late for 17 days. Please find a copy of the original invoice attached to this document.
Unless we’re contacted by you immediately to clarify how the outstanding balance will be paid, we will have no other choice but to initiate legal action to recover the outstanding balance owed to us. This process may leave you liable for all attorney fees, costs for filing, and your credit history may also be affected.
Prompt attention to and resolution of this matter would be appreciated.
Regards,
John Doe
Finance Manager
Feel Good, Inc.
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