Letters of Demand – an efficient and economical way to recover debt?

A letter of demand is a formal written request from a creditor to a debtor to repay a debt owed within a specified time. It allows the creditor to put the debtor on notice for an amount (including any interest and other charges), that remains unpaid, despite previous attempts by the creditor to recover the debt.

More often than not, a letter of demand is an efficient and economical way to resolve the dispute without having to go to court or tribunal.

However, for a letter of demand to be effective and have the desired result, it must include the following key elements:

• The precise amount that is outstanding to the creditor, including:
  • the particulars of the debt, for instance, as outlined in an agreement between the creditor and the debtor;
  • any relevant interest and charges and under what basis they are being charged;
  • the particulars of any invoices issued to the debtor;
  • the particulars of any reliance on representations or promises made by the debtor to repay the debt, as an acknowledgement of the debt owed to the creditor; and
  • complete and easy-to-understand calculations of the final amount of the debt owed to the creditor;
• The due date or the date by which the debtor must repay the debt, including how the debt is to be repaid – for instance, by cheque or into the creditor’s nominated bank account; and
• The consequences of late or non-payment of the debt, for instance, the creditor’s right to commence proceedings against the debtor and to tender the letter of demand as evidence to further the creditor’s claim against the debtor, including any claims for costs.