Letter of demand: when and how to send one

A letter of demand is often the fastest way to recover money you are owed. It is a clear, formal request for payment, and it sets up your next steps if payment does not come. This guide explains when to send one and what it should say.

What a letter of demand is

A letter of demand is a written notice that asks for payment of a debt by a set date. It puts the other side on notice that you are serious, and it creates a record. Many disputes settle at this stage, because a clear letter shows you are ready to take the matter further.

When to send one

Send a letter of demand once a debt is clearly due and the informal reminders have not worked. It is useful for unpaid invoices, a loan that has not been repaid, a bond that has not been returned, or any clear sum owed.

Before you send it, make sure the amount is right and that you can prove the debt. A demand for the wrong amount, or for a debt you cannot prove, weakens your position.

What a letter of demand should contain

A good letter of demand is short and clear. It should include the following.

The name of the person or business that owes the money. A clear statement of the amount owed and what it is for. The basis of the debt, such as an invoice number or a contract. A firm deadline for payment, for example 14 days. The payment details. A clear statement of what you will do if payment is not made, such as starting court proceedings.

Keep the tone businesslike. A letter that is abusive or that threatens something you cannot lawfully do can backfire.

Watch the limitation period

There is a time limit for recovering most debts. In NSW, the limitation period for a simple contract debt is 6 years under the Limitation Act 1969 (NSW). It runs from the date the debt first became due.

One thing to know. A part payment by the debtor, or a written acknowledgment of the debt signed by the debtor, can restart the 6-year period. If an old debt is involved, get advice before you act, because the timing can be decisive.

What happens if the debt is still not paid

If the deadline passes without payment, you can start court proceedings. For most debts, that means the NSW Local Court.

The Local Court hears civil claims up to $100,000. Claims up to $20,000 go to the Small Claims Division, which is designed to be quick and informal. Claims over $20,000 and up to $100,000 go to the General Division. Larger claims go to the District Court or the Supreme Court.

A letter of demand is usually a sensible first step before any of this. It gives the other side a final chance to pay, and it shows a court that you acted reasonably.

Frequently asked questions

Do I need a lawyer to send a letter of demand? No, but a letter on a solicitor's letterhead often carries more weight and makes the consequences clear.

How long should I give for payment? A common period is 14 days. The deadline should be reasonable and clear.

How long do I have to recover a debt? For most simple debts in NSW, the limit is 6 years from when the debt was due, though a part payment or signed written acknowledgment can restart it.

Where do I sue if they still do not pay? Usually the Local Court for amounts up to $100,000, with the Small Claims Division for amounts up to $20,000.

Keep reading

• Dispute resolution
• Suing for an unpaid debt in NSW: the Local Court process
• Responding to a statutory demand: what to do and the deadline

This article contains general information only and is not legal advice. For advice about your situation, please contact us. Liability limited by a scheme approved under Professional Standards Legislation.