How To Get Paid: Issuing A Letter Of Demand


One of the biggest issues that small businesses have in Australia isn’t something that happens before or during the sale. The biggest issue, in fact, happens afterwards when it’s time to collect money owed for the services provided. Business Victoria confirms this by highlighting “getting paid” and cashflow in their top 5 small business problems for Victorian businesses.

If you’re tired of being your customer’s bank and providing free credit services to them, that’s effectively what it is, then you have a few pathways you can take. It’s important to note that if your customers aren’t paying on time than in reality it could be your problem just as much as it is theirs if you haven’t put in place an effective trading terms.

Here is a summary of the pathways you might want to consider:

  • Continue to follow-up with the client via email and telephone (not recommended)
  • Hire a professional debt collector such as JMA Credit Control – most debt collection agencies have an in-house solicitor that can assist with legal action.
  • Take legal action immediately using a solicitor – it can be more affordable to use a debt collector that has an in-house solicitor.
  • Start the process of claim using a letter of demand.

The last option of sending a letter of demand may be the fastest and cheapest method you have to regain monies owed and indicate your intent to proceed with legal proceedings if the situation remains.

What is a letter of demand?

A letter of demand is usually sent when you have tried unsuccessfully to get your debtor to pay an outstanding invoice and there is no choice but to take more serious actions. A final notice can be sent to your debtors as a final opportunity to make payment before you employ a professional debt collection agency to take over.

It’s a formal request to be paid for an outstanding debt that you are owed.

The wording of the letter is clear, so your debtor has no trouble understanding the contents. The letter is firm, so the sense of importance is also clearly conveyed. The debt collection letter can prove to be a useful final tactic to get the debtor to pay up.

Before you send the letter of demand be sure that you’ve exhausted all prior methods for requesting payment such as follows up emails, overdue notifications, personal phone calls and payment plans. If you’re confident that you’ve done everything you can then it’s time to use a letter of demand as a clear reminder that this is your final notification before legal proceedings.

How does it work?

You should send at least one letter, although more is recommended, requesting payment with a “reasonable” amount of time. If the debt is substantially overdue, two Letters of Demand should be sufficient notice to repay.

It’s important that you provide the debtor with time to make arrangements and payment. You should be able to show that the debtor had more than one opportunity to arrange payment within a 21 day period. If that’s the case, and you’ve done that, then you can lodge a final claim called a statement of claim. We document this in on our post on the debt collection process if you need additional information. (please also see our action path)

What should you include in your letter of demand?

Your letter of demand should contain:

  • Amount of the debt
  • Date the debt was due
  • Date of the Letter of Demand
  • Description of the debt (such as what the money is owed for), and

Sending Your Letter of Demand

When it comes to sending your letter of demand you have a few options too:

  • Post: Using registered post you can prove your letter of demand was received.
  • Email: The best method is to use a read receipt or there are also tools available which embed content in the email, such as mailchimp, that can tell you if it’s been opened or not. You want to limit the opportunity to say that the email never reached their inbox or ended up in spam.
  • Fax: Ensure that you keep the ‘facsimile sent’ confirmation.

Are there any restrictions for sending a letter of demand?

Each court in each state and territory, within Australia,  has its own restrictions on the amount that can be claimed and timing for making any claim to collect the debt. You need to ensure you know what these are and which court to file your claim in.

What is next?

After you’ve sent numerous letters of demand it’s time to file a statement of claim. The filing fee for a Statement of Claim varies from State to State in Australia and the filing fee for a company is much higher than the fee for an individual.

Once the debtor is served with the Statement of Claim, they will have 21 or 28 days to respond, depending on your location.

If the debtor doesn’t respond within this time, you can then apply to the court to have a default judgment in your favour, which means there is no need for a hearing. However, you must make this application within nine months of when you originally filed your claim with the court, or else the case will be dismissed.

See more about the debt collection process.'

Written by Richard Thompson

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