Practical Ways of Recovering a Debt: Letters of Demand
From time to time you may need to take formal steps to recover a debt owed to you in the course of providing your services. For example, you may enter a contract to provide transport for private hire, and/or have clauses which require the customer to reimburse for any damage or cleaning requirements after services have been provided. Occasionally, a client may refuse or neglect to pay an invoice for services.
There are several steps you can and should take to pursue recovery of debts owed to you. The first and simplest step you can take to recover a debt owed is issuing a letter of demand. A clear, concise and persuasive letter of demand is a quick and cost effective way to recover an outstanding debt.
Issuing letters of demand is beneficial because they are inexpensive and pragmatic. Whether you draft the letter yourself or have it drafted by a lawyer, the cost and time involved will be significantly less than taking more formal steps such initiating as Court proceedings and less expensive than engaging a debt collector right off the bat.
The devil is in the detail, and there are key elements which you should include in your letter for it to persuade the recipient to comply.
What should the letter of demand contain?
Who it involves: While it seems obvious, make sure the letter is addressed to the correct recipient. Sometimes the person you have been dealing with will not be different to the person or entity responsible for paying the debt. If the recipient is a company and the company is trading under a different name, make sure you address it to the registered company. You can check whether a company is trading under a different name by searching the companies register.
What is at issue: In your letter of demand, you should formally notify the recipient of all the issues that require resolution, including whether payment of any money is sought. The relevant issues would include:
- the key provisions that you are relying on (for example, the clauses of any contract between you);
- your reasons why the recipient is in breach of their legal and/or contractual obligations to you; and
- what or how much you believe the recipient owes you.
Clear timeframes: A letter of demand should have an end date, to ensure the recipient responds to you in a timely manner and to make them aware that if they do not respond, you intend to take further steps to pursue recovery. Make sure any timeframe for providing a response is reasonable in the particular circumstances. If you have given a short timeframe for providing a response, give clear reasons why that is necessary.
What if they don’t respond?
If the recipient does not respond within the timeframes given (or does not advise you if they need more time to provide a response), it would usually then be appropriate to take further steps to pursue recovery of the debt. You can use the letter to demonstrate your attempts to recover the debts and show the recipient has been provided the opportunity to respond and they have failed to take steps to do so.
You should notify the recipient of the consequences of not complying with your demand for repayment, including whether you intend to you take legal action to pursue recovery. Be mindful that some matters may prescribe a particular process for pursuing recovery of debt before court proceedings can be initiated.
What if the recipient disagrees with me?
If the recipient does not agree that they owe you anything, consider how much you are willing to negotiate with them over the dispute. Lawyers can be helpful is considering the merits of any counterargument against your claim. If the other party does not consider they owe you anything, there are other more formal steps you can take to resolve your dispute. What process you would need to follow will depend on the particular circumstances. Make sure to check the particular provisions of your contract to see if there are prescribed dispute resolution procedures and seek legal advice.
If you need assistance recovering a debt, we can help. Get in contact with a member of our disputes resolution team to receive tailored advice: