A powerful addition to your collections toolkit is having a demand letter. This comes into play when you have tried everything to receive a payment from your customer/s.

A letter of demand, also known as a dunning letter or debt collection letter, helps your B2B customers know that there are consequences for paying you late. It’s a more formal way of going about things compared to your payment reminders and less formal than a legal notice.

Just like any relationship, your business relationships have rules and boundaries and you need to set examples and not allow the relationships to only be one way.

When Should I Send a Letter of Demand?

A letter of demand is usually sent after you have had a number of failed attempts to contact the customer for payment that is owed to you.

Let’s say your business, Wally wallets has supplied $15,000 worth of goods on credit to Ben’s Leather Goods Shop. The due date was 60 days ago and since then, you have sent email payment reminders and tried calling them multiple times.

Although you also don’t want to lose your customer and come across as too pushy, you can no longer afford to hold the debt of $15,000. This is when you need to send the letter of demand.

Send a letter of demand when;

• You have sent payment reminders and have called but failed to get an answer.
• Your customer promised to pay but your money has not been received yet.
• You have a trade credit agreement with your customer and want to remind them of their obligations.
• You want to give your customer another chance before taking legal action.

Before you send the letter of demand

• Phone your customer and try your best to resolve any problems they may be facing.
• Send payment reminders.
• Consider setting up a payment plan for your customers who are struggling to get a lump sum sent to you.

If you find yourself in a situation where a letter of demand is needed, we have provided a simple template that you can use.

Example:

LETTER OF DEMAND

[date]

[your business name, address, and contact details]

[other party’s name and business address]

Dear [name of other party]

I am writing in relation to the amount of $[amount ‘including GST’]. According to our records, this was due to be paid by you on [date] and remains outstanding. My requests for payment are listed below.

The amount relates to [description of services] provided to you at your request, on [date].

Please find enclosed a dated copy of the invoice and note that it specifies [describe payment terms and instructions]. I have also enclosed the following documents:

[name of document]

[name of document]

[Documents may include previous requests for payment. List and enclose any other relevant documents that support your claim for the amount owing].

Please be advised that I demand payment of the invoiced amount [plus an amount of ${amount} for late payment interest as agreed in our contract dated {date}] within seven days of the date of this letter.

Payment should be made by [describe how you would like to receive payment i.e. bank account for deposit or address for the cheque to be posted].

If payment is not received within seven days of the date of this letter I reserve the right to take further action to recover the monies without further notice to you.

Yours sincerely

[signature]

[your name and title]

Letter tone of voice

In your letter, you want to remain firm but also reasonable. This letter is also an opportunity to mend the business relationship.

What’s next?

PencilPay is a B2B trade portal for better business that helps you get paid on time with automated email and SMS reminders. Interested in learning more? Book in a demo and get in touch with the team here.