A letter of demand is one of the most effective tools used to recover unpaid debts. It is formal and it is forceful. Here are three tips to make your demand letter works to produce the outcome you need – payment of a debt already due:
1. Use non-accusatory language.
A letter of demand is a formal business letter. A letterhead gives your letter a sense of legitimacy. The letterhead should identify your company name and your contact information. The contact information includes telephone and facsimile numbers, mailing address, and email address. The body of your letter should contain the following information:
- the amount of debt owed
- the source of the debt
- the time the debt is due
- the mode to make the payment
- the person to contact when there is any issue
The language of the demand letter should be formal, using simple and clear words. State your facts in chronological order. Do not use accusatory language. While not getting paid can get the best of you, do not let your emotions get the best of you. An unpaid debt is a business debt and you can recover it without using condemnatory language. A critical demand letter inflames an unnecessary dispute. It also renders your debt collection process ineffective and ruins your business relationship.
2. Send at the proper time.
Send two written payment reminders first before sending the letter of demand. Use the letter of demand as your last step and only when the payment reminders were not successful. If the debtor company promises to pay after receiving your final payment reminder, give him a chance to pay in accordance to a timeline that you both can agree to.
Make copies of the payment reminders you sent to the debtor company and all other correspondence you have had. Attach these copies in your demand letter. To send a demand letter, use a mailing option that requires the receiver to sign for the document. This is to make sure your letter was served properly to the debtor company.
3. Do not resort to unethical behavior.
Just because somebody owes you money does not mean you have the right to coerce him to pay you. Proper service of demand letters is important. New Zealand’s Fair Trading Act of 1986 prohibits undue harassment when seeking to recoup payments. While a letter of demand is one of the most effective ways to recoup an unpaid debt, it can work against you and even harm your business’ prospects if service is accompanied by harassment.
Takeaway
Language, timing, and ethics are three things you need to take into consideration when planning to use a letter of demand to recover unpaid debts. In order to maximize its effectivity and avoid its harm, it is best to seek the advice of professionals in drafting your letter and in proceeding to serve one to a debtor.