Hand writing on paper

What is a letter of demand and when to use it

When you are owed money, you can write to the other party requesting payment. Usually this is done by sending a formal letter of demand.

A letter of demand is... 

The letter of demand should include a statement that if the money is not paid by a particular date, you may take further action to recover the money owed to you, such as going to court. 

A letter of demand might convince the other party to pay to avoid the possibility of going to court. If you do go to court, the letter of demand is evidence that you tried to recover the money owed to you. 

However, sending a letter of demand can have its disadvantages. Depending on the situation, the other party may feel threatened and respond negatively, or they may not respond at all. They might engage a lawyer, or they might even start legal action against you.   

In some circumstances, sending a letter of demand might limit any opportunity to settle the dispute outside of court. You may consider making an offer to the other party that you are prepared to accept in order to settle the matter, so you can move on. 

Going to court can be costly, stressful, and time-consuming. If your demand for payment is not successful, it's usually best to try other dispute resolution options before taking legal action. You can attempt to settle the dispute yourself by negotiating a mutually agreeable outcome with the other party. You could also use the NSW Small Business Commissioner’s mediation service. 

Rather than sending a letter of demand, you could send a letter to the other party requesting payment of the money owed to you. In this letter, you could invite them to negotiate with you or you could invite them to mediation through the NSW Small Business Commissioner.  

By writing to the other party requesting negotiation or mediation, you may find a way to resolve the dispute in a timely and cost-effective way, without the need to send a letter of demand or start a court case.  

Download our sample letters and you can adapt them to your situation.