When Should You Send A Demand Letter?

We know the debt collection process can be a little confusing. There are a lot of moving parts involved, and certain things need to be done at certain times in order to make any future legal processes a little easier. One of the things we’re asked about a lot is when the right time is to send a demand letter to a client – and can sending one at the wrong time impact your ability to recover the debt?

What is a Demand Letter?

A demand letter really is what it says on the tin – it’s an official letter demanding payment for an outstanding invoice. This letter, also known as a ‘Letter Before Action’, and  details how much is owed, for what service, when the invoice was due, the communications sent beforehand, and that the payment is now expected. It usually also explains what the next step is if payment isn’t received – usually a court claim. It’s commonly used in the debt recovery process, and can either be sent by yourself or by a debt recovery agency acting on your behalf.

Before You Send

The very first rule of demand letters is that you can’t send a demand letter until the debt is actually overdue. Otherwise there is no debt to claim back! So before you start typing one out, it’s a good idea to check your payment terms and make sure that they are clear, and that the client has actually breached them in some way. You should also make sure there is no dispute happening that could be delaying payment. If that’s the case, you should focus on resolving the dispute before moving on to demand letters.

The Effects of Demand Letters

A lot of businesses will actually avoid sending demand letters for a while, because they are worried about the effect it will have on their customer and the future relationship. It’s a legitimate concern, which is why it’s important to consider what impact sending a demand letter could have before you take more action. This involves deciding whether you actually want to work with the customer in the future, especially if they have demonstrated that they are unreliable with payments. Unfortunately we can’t tell you what that reaction will be – you need to assess that on a case by case basis. Some businesses have a policy of sending out demand letters automatically once a debt has become overdue a certain number of days – for example 30, 60 or 90 days. We usually recommend the first letter is sent out after 30 days, and escalates after that.

You can of course send out multiple demand letters before you take legal action. But we don’t generally recommend sending more than 3, or else the impact gets lost and clients don’t respond as well. At Debtcol, we can help you understand what your options for debt collection are, as well as writing and sending demand letters on your behalf and supporting your claims through the court process. If you would like to know more, just get in touch with the team today.