Chasing Debts – How To Issue A Letter Of Demand
The cash flow of any business is critical. Even if your business is making sales and operating successfully, if you do not have control over this cash flow and your debtors are not paying on time, you can face liquidity issues. Therefore, it is important to have a clear process for chasing debts and recovering outstanding amounts. One way of doing this is to issue a letter of demand.
Recently I read a great article on the topic, titled: How to get paid: issuing a letter of demand, and these are some of the points the author made.
There are three main methods you can undertake to recover what is owed to you and these are:
- Use a debt collection agency. They will charge a fee whether funds are recovered or not as well as a percentage of the actual amount that is recovered.
- Commence legal action using a solicitor.
- You can issue a letter or demand.
The benefits of the letter of demand are that you manage the process yourself, it can save time and cost less than the first two options. The letter of demand is normally sent after you have already made several requests for payment which have been ignored. It is a more formal method to advise the debtor that you will take further action if the outstanding payment is not made by the stated date.
It is important that prior to sending the letter of demand you have provided at least one opportunity for payment to be made within a reasonable timeframe.
When you prepare your letter of demand it should contain:
- The amount of the debt.
- The date the original debt was due.
- The description of the debt (i.e. money was owed for X goods or Y services provided on Z date)
- Evidence of debt due: contracts, agreements, invoices, emails that agree to the work to be done or goods to be delivered and paid for, or other items that may indicate and make clear that both you and your debtor agreed payment and the terms upon which payment was to be made.
- Any subsequent requests you have made for payment.
Ideally, your letter of demand has the desired result and the full payment is received but if not you can commence formal proceedings.
You could consider the first two options listed above which is the use of a debt collection agency or a solicitor. You can also continue to pursue the matter yourself.
Each state has different processes in relation to how much can be claimed and the process that needs to be followed. For example, in Victoria you could commence proceedings in the Victorian Civil and Administrative Tribunal.
Refer to the article How to get paid: issuing a letter of demand, for more information on these next steps as well as more details on the points discussed above.