To our estate planning and administration clients with businesses in their estates:
As a business owner, it is almost guaranteed that you will encounter some variation of the following scenario: You engaged a client and completed fantastic work. The products the client desired were delivered on time with practically no issues. To request the money the client agreed to pay you, you send an invoice or a bill. Unfortunately, your invoice is met with no response. You try again. Still, there is no response. You try a third time and are ignored again. It is then clear that your client has no intention of satisfying the balance. What should you do?
Sending a demand letter is a common and often fruitful approach to nonpayment. A demand letter is simply a letter sent to a person or organization that has yet to satisfy a debt giving notice that legal action is being considered. A demand letter can be instrumental in obtaining satisfaction of the debt, but there are some things to keep in mind. Here is what you should know before you send a demand letter.
- Demand letters do not guarantee compliance. A demand letter can help communicate to those who owe you money that you are serious about pursuing the debt. Before receiving a demand letter, an offender may ignore the debt and hope it will go away. However, upon receiving legal notice that a claim may be made against them, many people respond swiftly. Nevertheless, this is not always the case—demand letters are sometimes ignored, or a response explaining why the debt has not been paid is received instead. When sending a demand letter, be prepared to take action: Consider the steps you are willing to take if the individual or business refuses to pay out of spite, inability, or some other reason.
- A demand letter can be used against you if a legal battle ensues. The saying “anything you say can and will be used against you in a court of law” applies to demand letters. As a result, you must be very careful about the language that you use in your letters. You should not use a demand letter to threaten unfounded or frivolous claims. It should also not be used to threaten any physical or unlawful consequences. Doing so will cause more harm than good, and you could face legal penalties if you are not careful.
- You do not need to provide every single fact or piece of evidence about your case in a demand letter. You should exercise caution when drafting a demand letter to avoid jeopardizing any potential claims you may have. Your letter should avoid mention of specific elements that may be detrimental to your claim. Consider, too, whether the information you provide could hint at your case’s weaknesses and strengthen the opposing party’s case. Out of caution, most demand letters are brief, stating only the facts necessary to provide context and a statement regarding the payment requested. In this case, less is more.
- An attorney is not required to send your demand letter. There is no requirement that an attorney send a demand letter. However, letters from attorneys often garner stronger responses. An attorney can also ensure that the language of the demand complies with the relevant statutory notice requirements.
- There are legal limitations on how one can pursue a debt. As you attempt to collect a debt, ensure that you adhere to the law regarding debt collection practices. Most states require that notice be given, including precise information such as the legal name of the person or company who owes the debt, the amount owed, and how the person can investigate or respond to the debt in question. If you have any doubts about what should be included, consult with a knowledgeable business law attorney.
If you are contemplating using a demand letter to collect a debt or nonpayment for your business, our office can help. We have assisted our business clients in obtaining repayment and know what it takes to craft a successful demand letter and avoid exposing your business to additional legal risk. Contact us for help.