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A Letter of Demand is typically a formal request addressing an outstanding debt. If an individual or company owes you money but hasn’t responded to any of your other requests or invoices, then you can use a Letter of Demand. The debts are usually regarding payment for services, rent, money lent without any supply of goods, and so on. There seems to be an endless list that includes business debts or individuals who didn’t receive the payment for their services. A Letter of Demand is typically a formal approach for any debts you may need to recover.
However, it is crucial to note that you can not use a Letter of Demand for any loss or damage. For example, if someone damages your property, you can’t demand payment through a Letter of Demand.
Why is a Letter of Demand important?
A Letter of Demand can be advantageous due to the following reasons –
- It’s a formal approach to giving clear notice of intention to the recipient. The letter informs them that if the debt is not paid, there will be legal consequences – including legal proceedings.
- It gives the debtor a final opportunity to pay the debt without any legal matters involved.
- It maintains goodwill between the two individuals and/or companies before going forward with possibly expensive litigation.
- You can use the Letter of Demand as evidence in Court to prove that you gave the debtor enough time to pay you back.
- It is proof that you made an effort to settle the matter amicably.
Letters of Demand can be extremely useful. It encourages debtors to promptly pay their debts and avoid legal action in the courts. A Letter of Demand can be effective in various circumstances. In some situations, the debtors intend to pay you back but also have a good reason for not being able to do so. Hence, a Letter of Demand alerts them and prompts them to either pay or contact you and discuss the relevant circumstances. Moreover, it preserves goodwill and allows you to receive your payment as soon as possible. In the end, you and the debtor want to avoid the stress and legal consequences of the Court, which also prompts the debtor to pay the debt immediately.
What are the limitations involved regarding time and amount?
While there are no strict limits on the amount you can claim in a Letter of Demand, there are limits on the amount you can claim in Court. However, the claim amount can differ in the different States and Territories in Australia.
Each State and Territory will have a kind of small claims court. These are typically designed to create a straightforward, cost-effective way to recover smaller debts. However, they do have a maximum claim amount. Hence, if your claim amount exceeds their maximum limit of compensation, then you may have to take your case to a higher court – such as the State Supreme Court. However, this will turn out to be a costly and complicated process.
In the case of ordinary claims due to a breach of contract, there is a six-year limit to collect the debt starting from the original date that it was due. However, in the case that the debtor acknowledges the debt and submits a written confirmation to repay it, the time limit will reset and begin from the date of the written letter of confirmation.
In the case of ACT, the maximum amount of compensation is $25,000 with a time limit of 6 years in ACAT. However, the maximum compensation in the Magistrates Court is $250,000 with a time limit of 6 years. The claim amount will differ for other States and Territories, but the time limit will be either 3 or 6 years.
How do I write a Letter of Demand?
It must include the following details –
- The amount of your debt
- The date the debt was due
- The date of your Letter of Demand
- Details regarding the debt – (what does the debtor owe you money for)
- Any relevant evidence that proves the debt – contracts, emails, invoices, or any other written agreements
All pieces of written evidence must be copied and attached to the Letter of Demand. Moreover, you must also be aware of the claim amount limitations and the time restrictions for claiming your debt. Additionally, date your Letter of Demand to the debtor knows exactly what their deadline is to either pay you or contact you for negotiation.
Factors to consider when writing a Letter of Demand
The Letter of Demand must be straightforward and clear. You must use respectful language and refrain from any allegations or arguments in the letter. Simply state the relevant details regarding the debt – including the date it was due, what it was for, confirm that it hasn’t been paid, and the number of requests you’ve previously sent on this matter.
Ensure that your letter warns the debtor that you will take court action if the debtor doesn’t pay your debt. Generally, you must give them a deadline after which you’ll seek legal assistance. The deadline is usually between one to three weeks for the final payment, but you can decide according to your requirements.
It’s a general practice to send two to three letters before you decide to go with court action and give 7-21 business days to pay the debt. It gives the Court enough evidence that you’ve tried to be reasonable and given the debtor ample time to pay your debt. However, two Letters of Demand should be enough if your debt is significantly overdue. In the event that you send no more than one Letter of Demand and do not intend to send any more, then you must consider giving 21 days for the debtor to pay you back. Irrespective of the number of Letters of Demand, you must give your debtor at least three weeks to pay your debt before proceeding with legal action. It provides the debtor with a fair opportunity to respond and pay you, considering any unforeseen circumstances.
What if my Letter of Demand is not paid?
You should wait for at least 21 days before taking further action. The 21 days is an adequate time frame for the debtor to organize payment or negotiate with you for any possible alternatives. However, after the time period has ended, and the debtor has not paid the debt or reached out, then you may consider filing a claim in the relevant Court in your jurisdiction.
However, it is crucial to check State Court websites to ensure you understand the recoverable amounts before you take legal action. The service fees may vary in each State depending on several variables. For example, if the debtor is out of State – or even out of the country, then a Statement of Claim can be costly.
The next step is to take the Statement of Claim form and file it in Court. It usually involves in-person submission, but some States and Territories also offer online registrations. Hence, it’s best to check with your relevant Court and find up-to-date and relevant information regarding the filing process. However, if you are filing in person, you must print and bring four copies of the Statement of Claim form.
The registrar will return one copy to you after verifying the details for your record. They will send one copy to the debtor and keep the other two copies by the registry at the Court. The filing fees depend on the claim amount but will also vary from State to State, but the filing fee range for ACT is $77 – $2,153.
How will the Statement of Claim reach the debtor?
You may either serve the Statement of Claim in person, pay the Court to send it by post, or hire a process server. However, a process server will cost you at least $100 for each attempted delivery. If the debtor is interstate or abroad, it may be more costly. Hence, a process server seems like an unnecessary expense, especially when you can send the documents by registered post.
Generally, you must serve the Statement of Claim within six months of filing the claim in Court. The claim amount you’ll receive depends on the relevant Court and their claim amount limitations. Some costs are unrecoverable – such as the cost to serve the Statement or hiring a process server.
If the debtor doesn’t reply to the Statement of Claim within 28 days, then you can apply to Court for a default judgment. This means there will be no hearing, and the judgment will be in your favour. However, you must apply within nine months of filing your claims. In the case that the debtor files a defence or counter-claim, then you will need to attend Court.
Recover your money with United Legal
We understand the impact of not receiving significant payments on time and the tedious process involved in getting your payment back. At United Legal, we have a team of experienced lawyers who help you navigate the complicated process and represent you in Court. Get in touch with one of our lawyers today to fight for your legal rights.
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