How to write a Demand For Payment Letter To Collect On Past Due Invoices

I’m writing this article in collaboration with Anitha Cadambi, an attorney from California who actually enjoys writing about the law! Let’s talk a bit about collecting payments and writing Demand for Payment letters

Let’s start with a hypothetical situation:

“Beachy Design Studios,” a Florida-based design firm, lands a big awesome website project in 2011 with “Mountain Top Hotel,” a Colorado-based hotel chain. Beachy Design Studios uses a service contract and Mountain Top Hotel signs the project, pays the deposit and the project starts. The contract is an hourly one and the client pays each month after receiving an invoice. After six months, Mountain Top Hotel gets behind on their payments, and after another 30 days of work Beachy Design Studios stops work.

First Line of Attack: “Demand Letter” often called a “Demand for Payment Letter”

Why a demand letter?

It starts the negotiation process between Beachy and Mountain Top. It lays the foundation for a well thought out presentation of Beachy’s case to the court, if necessary. It presents a carefully crafted letter rather than a verbal threat. A shouting match may not accomplish anything, and Beachy is better off having a carefully crafted letter sent to Mountain Top where Beachy can at least pretend to be calm and composed. At the end of the day, try to maintain a peaceful demeanor throughout your demand letter process.

Why demand for payment letter?

By sending a demand for payment letter, you are establishing the first blow but it’s more of a wimpy punch that isn’t a total knockout. But at this stage in the bout, that’s ok. It’s basically your attempt at being nice and simply alerting the other side that they are late in their payments and should take note of the payment owed.

Wait a minute…are demand letters really that helpful?

They can be. It boils down to the party you are dealing with. We hear people living in colder regions aren’t as chilled out as us beachgoers. But cold weather aside, the ultimate determining factor is that a demand letter will serve its purpose–that is, it makes a demand to the other side to either make a payment or set a timeline within which said payment should be made. In the event that the payment is not made, the party who sent the letter knows that it’s time to start a more formal, legal process, also known as “let’s go to court.”

What about the demand for payment letters? Again, they can be. If Beachy and Mountain Top have a decent relationship, and the only issue is that Mountain Top forgot to pay, we don’t see why Mountain Top would object. Things get a bit complicated the minute Mountain Top refuses to pay. At the same time, if you are willing to compromise, you could even recommend working with the other side on easing payment terms. For example: “You can pay the amount due in installments of $5000 over three months.” By offering a solution, you are showing the other side your willingness to cooperate.

Typical Schedule for Demand Letters

Initial considerations:

• The basic premise of your letter is this: State why you have a dispute, and that if this particular attempt at negotiation fails, you will take the case to court.
• Make sure you send the demand letter in a timely manner because waiting too long after your claim becomes due could jeopardize your attempt at collection.

Particulars:

• Use a letterhead. This makes the demand letter look official and formal. State why you are writing the letter.
• Outline the facts/story leading up to the demand letter in a chronological manner.
• State the legal basis for your claim.
• State how you will pursue legal action if your demand is not met, and include a timeline within which the demand is to be met.
• Do not threaten or use accusatory language, as this definitely won’t help your cause!
• Make and keep copies of your demand letter and any response received.
• Use a mailing option that requires the recipient to sign for the document. This way, you know the recipient actually received the letter and you can keep track of it.

Example of Demand Letters

• Self-help center sample
• Docracy template

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Skeleton of a demand letter – This is just an example and should be tailored to fit your specific situation.

Mountain Top Hotel
1 Street
Leadville, Colorado
Re: Unpaid Invoices amounting to $15,000
Dear Mr. Mountain Top,
This letter is pursuant to your agreement to pay Beachy Design Studios for our services dated February 15, 2013 for the amount of $15,000.
{Include facts surrounding your issue here: how you had an agreement, the date of the agreement, what you agreed to, and how payment hasn’t been made based on this agreement.}
Your failure to pay as per the February 15, 2013 invoice amounts to a breach of contract.
Please acknowledge receipt of this letter within five business days. Please make your payment (insert means of payment as per your contract terms) no later than March 15, 2013. If you fail to respond, I will be compelled to pursue legal action.
Thank you in advance for your prompt attention to this matter. I look forward to hearing from you. If you have any questions, please do not hesitate to contact me at (xxx)-(xxx)(xxxx).Sincerely, 

Beachy Design Studies
{Insert any relevant documents/copy of invoice to this letter.}

Skeleton of a Demand for Payment Letter

We previously wrote about collecting on unpaid invoices, the advice is still the same, focus on the following essentials:

• Using “please,” “I request,” “thank you,” and other words of kindness are a must.
• Your tone should be soft and less assertive.
• State why you are writing the letter.
• Indicate the exact invoice that is overdue, by how much, and how a late fee might apply.
• Attach a copy of the invoice to the letter so the client knows the specific invoice you are referring to.
• Indicate how you need an acknowledgment from the other side as soon as they receive your letter.
• Be clear about what you are asking for. Indicate a deadline within which payment should be made and identify how payment should be made.

What if you have no contract, but have a verbal agreement?

Oral agreements are honored provided the statute of frauds does not apply to the particular transaction. However, oral agreements may be harder to prove. (Note: statute of frauds is a topic beyond the scope of this article.) A court will look at all transactions and performance leading up to the date of dispute and award a remedy accordingly.

Emails or letters as contracts? Remember, just because you did not have a seven-page service contact typed up doesn’t mean your contract wasn’t in writing. If your email or other letter communications satisfy the basic contractual requirements of offer, acceptance, and consideration, and no other legal issues prevail, you might still have a written contract.

What if your contract has a vague statement of work?

A vague statement of work will create an issue at some point in the future so try to get it right the first time. However, any potential vagueness argument is for the other side to bring up. You want to stick with the fact that the statement of work is clear and that you are owed a certain amount as per the contract. Further, any issue of ambiguity will be hashed out in court, and you should be prepared to show to the court why your interpretation is correct. Typically, the court may decide to interpret the ambiguity against the party who drafted the contract but this differs with every situation.

Will my demand letter be used in court?

Yes. You can use it to show the judge that you made a good faith effort to collect but failed. Typically, with small claims cases, the court requires you to make a request for payment first before initiating a case in small claims court. (For more about small claims cases in different states, please visit this website.)

DISCLAIMER: This article is just friendly advice and only reflects the personal views of a few ‘ordinary’ people. It may not be the kind of advice that you agree with nor prove to be helpful for your situation. This article is not a substitute for legal advice from an attorney in your own state. By using this website, you understand that there is no attorney-client relationship between you and the author. We encourage comments and viewpoints but try to be nice!

Read on…

• Understanding Service Contract Legal Jargon
• Online Bookkeeping Services
• Common Contracts For A Service Business
• Graphic Design Contracts Explained
• Free Photography Contracts
• Writing A Demand For Payment Letter To Collect On Past Due Invoice