In NSW and most, if not all, Australian States, a letter of demand is a letter that you send to another party to demand money that the other party owes you. A letter of demand is usually the last piece of communication before commencing legal proceedings. If you have a relationship with the other party, you may wish to make the documents that you send before a letter of demand a friendlier series of reminder letters. For example, a first reminder and a final reminder.
Writing a Letter of Demand
A letter of demand should state in simple terms:
- What is owed,
- What the amount is owed for, and
- When the outstanding amount should be paid.
The letter of demand should be straight forward and not include emotion in it. The top of the letter should state ‘Letter of Demand’ and you can also state in the letter that you will consider legal action if the terms are not met. Both of these points let the recipient know you are serious about getting your money back.
Consequences of sending a Letter of Demand
While a letter of demand may be a necessary action to recover your money, it may inflame a dispute. In addition, if you’re not planning on taking legal action, don’t say that you will. Trying to call their bluff and failing to take action will likely not achieve anything and may undermine any future action.
Once your letter has been received, a few outcomes could occur. In a perfect world the other party would do as the letter has requested – you would receive payment – and the matter would be closed. But we don’t live in a perfect world. The other party may try to negotiate for a lessor amount or ask for a payment plan. The other outcome is that they may reply and contest that they owe money or simply ignore the letter.
You may engage a lawyer to advise you of the options for your specific situation and write the letter on your behalf. Remember that here is no guarantee the recipient will meet the conditions or even acknowledge the letter. If the recipient hasn’t met the terms of the letter by the due date, you will need to decide whether to proceed to the NSW small claims division of the Local Court, or a higher court depending on the amount owed.