Letter of Demand 101
Given the current economic climate, it is important more than ever for a business to ensure that they are able to receive payment for work carried out. This is particularly important for businesses in the construction industry as cashflow is the lifeblood of many construction companies, particularly subcontractors.
If an invoice remains unpaid past the due date for payment, one of the first steps would be to issue a letter of demand.
A letter of demand is a demand to get a third party to do a specific thing, or to cease doing a certain thing. However, in most instances, it is used to seek payment for debts due and payable.
A comprehensive letter of demand for an outstanding debt should include the following:
- Details of the arrangement/contract between the parties regarding the debt that is due and payable;
- Set out the amount owed and why it is owed;
- Provide a breakdown of the amount owed with any relevant supporting information;
- Provide a timeframe for the payment to be made, but in most instances should be a minimum of seven days; and
- The letter should clearly state what could happen if no response and no payment is received e.g. legal proceedings will be commenced.
The letter of demand should provide sufficient detail for the recipient to understand the claim that you have and why you have issued the letter of demand.
It is advisable to include a copy of the outstanding invoice, though it is not necessary. However, the added benefit of including the unpaid invoice is that issuing a letter of demand with the outstanding invoice will also start time ticking pursuant to the Security of Payment Act, in the event that you are entitled to issue a payment claim.
The courts generally do not require a letter of demand to be sent prior to commencing proceedings, however failing to issue a letter of demand prior to commencing proceedings may reduce the amount of legal costs you can claim should you be successful in the proceedings.
Whilst you do not need a lawyer to write a letter of demand, there are a number of benefits in having a lawyer draft and issue a letter of demand on their letterhead. In particular, it gives an indication to the recipient of the letter of demand that you are serious about pursuing the matter, and that you are willing to spend money in legal costs to obtain the item sought in the letter of demand. Further, seeking legal advice prior to issuing a letter of demand may assist you to understand your legal rights, and based on the legal advice, you might find that there are other potential actions or claims that could be pursued against the recipient of the letter of demand.
Bradbury Legal has issued many successful letters of demand in which our clients have obtained payment in full, even for claims exceeding $100,000.00. Though, each response will depend on the position of the recipient.
Once the letter of demand is issued, the recipient can:
- pay the money sought in the letter of demand in full;
- start a dialogue between the parties that could assist in reaching a settlement of the dispute; or
- not respond or dispute the claim.
Should you wish to pursue the matter further if there is no response and no payment received, you could:
- commence proceedings in a court or a tribunal; or
- prepare an adjudication application in accordance with the Security of Payment Act,
depending on your legal rights to do so.
If you require any assistance with any issues regarding debt recovery, or any other disputes which require a letter of demand, feel free to get in contact with Bradbury Legal on 02 9248 3450.