A Demand Letter for Payment is typically sent to notify a party that they defaulted on specific financial obligations.

It is a formal written request for payment of a debt that is owed, and it usually outlines the amount owed, the date by which the payment should be made, and the consequences of not making the payment by the specified date.

In many jurisdictions, when first recovering a debt, parties first try to recover it through means other than small claims court or a lawsuit. Consider a demand for payment letter as an initial, non-confrontational approach to recovering a debt.

Table of Contents

When a Demand for Payment Letter Is Needed
The Consequences of Not Using a Demand for Payment Letter
How to Send a Demand Letter for Payment

When a Demand for Payment Letter Is Needed

A demand for payment letter is used when someone owes you money. Remember, every situation is fact-specific and should be approached differently. Here are some common cases where a demand for payment letter is recommended:

Payment has not been received within the agreed-upon time frame.
Despite contacting the company, they have not remedied the situation within a reasonable period.
You were billed for a service or product never provided or delivered.
A company has declined to credit your account, even though you believe you are entitled to a credit.

Because your demand for payment will be used in a court claim, be polite, stick to the facts, and clarify your expectations without being unreasonable or disrespectful.

There are situations where a professional invoice template will do. For example, if you are a building contractor and have completed work as agreed, you shouldn’t send a demand for payment on the work completion date.

The Consequences of Not Using a Demand for Payment Letter

There are a couple of potential consequences for not sending a demand for payment.

You may never get paid. Without sending a demand letter, you may leave money on the table.
You cannot proceed with a lawsuit if you have not first filed a demand for payment.

How to Send a Demand Letter for Payment

Step 1 – Gather Proof of Debt

Confirm Details of the Debt: Confirm the amount owed, including any additional fees or interest.
Compile Contact Information: Ensure you have the correct contact information for the debtor.
Document Previous Attempts to Collect: Document all previous communication and attempts to collect the debt.

Step 2 – Draft the Demand Letter

We provide a step-by-step guide on how to write a demand letter.

When writing a demand letter for payment, use clear and concise language to detail the amount owed, including any additional fees or interest, and specify a firm deadline for payment. Identify all parties involved and provide detailed payment instructions.

Maintain a professional and polite tone while outlining non-payment consequences, including legal action or reporting to credit agencies.

Step 3 – Review and Send the Letter

Proofread the Letter: Check for clarity, accuracy, and completeness.
Use Certified Mail: Send the letter using the United States Postal Service’s certified mail services with a return receipt to have proof of delivery. Find a USPS Location.
Keep Copies: Retain a copy of the sent letter and the delivery receipt for your records.

Step 5 – Follow-Up

Monitor the Deadline: Keep track of the payment deadline.
Be Prepared for a Response: Be ready to receive payment, negotiate payment terms, or take further action as necessary.
Take Further Action: If the debtor fails to respond or pay, consult an attorney about the next steps, which may include filing a lawsuit.

Step 6 – Mediation or Legal Proceedings

If a debtor fails to respond to a demand letter or does not pay by the specified deadline, you may consider taking further action to recover the debt.

Here’s an expanded overview of the possible steps:

Negotiate a Payment Plan – If the debtor cannot pay the total amount, consider negotiating a payment plan or agreeing to accept a lesser amount to settle the debt.
Mediation – If the debtor cannot pay the total amount, consider negotiating a payment plan or agreeing to accept a lesser amount to settle the debt.
Hire a Debt Collection Agency – Employ a debt collection agency to recover the debt on your behalf. These agencies have experience in debt recovery, but they will typically charge a fee or a percentage of the recovered amount.
Small Claims Court – You can file a lawsuit in small claims court for smaller debts. This process is generally quicker and less expensive than other court proceedings, but there is typically a limit on the amount you can sue for.
Civil Lawsuit – If the amount is substantial, file a civil lawsuit in the appropriate court. A successful lawsuit may result in a judgment that the debtor must pay the debt, along with possible court costs and attorney fees.
Report the Debt to Credit Bureaus – Report the unpaid debt to the major credit bureaus. This action can negatively affect the debtor’s credit score, potentially encouraging them to settle the debt.