A demand letter for payment is an official notice that informs another party of a payment request. The demand will describe the source of the debt along with a breakdown of its calculation. A demand is commonly sent as a final notice before the matter goes to a collection’s agency, Small Claims Court, or other legal ramifications.

A demand letter is often thought of as a “pre-trial” letter and when litigation really begins. The letter is modeled to act as a final warning to another party before legal action is to occur.

Gathering evidence to add attachments or exhibits to the demand letter helps show the debtor owes the money. Whether it’s by a contract, they signed a receipt for goods sold or service provided or any other proof.

When writing the demand letter, it’s best to think of the strategy beforehand and what the “threat” or “incentive” should be to motivate the debtor.

The most popular ways to entice a debtor to pay are the following:

• Collection’s Agency – Individuals that care about their credit report know that if a debt goes to a collection’s agency it will affect their credit. Therefore, letting the debtor know this may motivate the debtor to at least respond.
• Discount – A business or individual will occasionally offer a discount or “1-time offer” if the debt is paid by a certain date. Businesses will mark-down commonly up to 50% in order to get the debt settled.
• Installment Payments – Offering the debtor a payment plan is often a route that is best for young or individuals living paycheck to paycheck.
• Small Claims – If the debt is applicable (See State Maximums), threatening to go to Small Claims Court should make the debtor feel uncomfortable. If the debtor owns property a lien may be placed on their property with an official judgment against them.

After attempting to entice the debtor to settle the debt in any way possible, the closing of the letter should include all available contact methods (e.g. phone, e-mail, website, etc.).

When sending the demand letter in the mail, it’s best to use the United States Postal Service’s Certified Mail with Return Receipt.

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The term “certified mail” is trademarked by the United States Postal Service (USPS) and is required by the sender to inform the debtor of their money owed. The option “return receipt” means the sender will receive a log from the USPS stating when the letter was delivered and who accepted it (with their printed name and signature). This return receipt may be used in court to prove the debtor received sufficient notice before filing the case.

If there is no response by the debtor, there is no other choice but to advance legal proceedings or elect to hire someone else to attempt to collect the debt. The creditor has the following options:

• Forward the Debt to a Collection’s Agency – Ideal for businesses with many debtors. The costs of hiring an attorney and filing legal proceedings for every debtor a business has may outweigh the actual benefit. Therefore, teaming up with a collection’s agency that is a professional in this area may be better and the only payment is when they collect, typically 25% to 50% of the amounts collected.
• Small Claims Court – This is a cost-effective route for an individual seeking an amount that is lower than their State-mandated maximum amount for Small Claims. This commonly does not require an attorney and the cases are “fast-tracked” often being able to get a court date within 30 days.
• District/Superior Court – For amounts higher than the maximum amount provided by the State’s Small Claims Court and required hiring an attorney and obtaining sound legal advice.