Are you thinking of what to do next when you have exhaustively chased a customer, and there’s no sign of him repaying back a debt in the near future?
If yes, it is high time to consider a more assertive strategy.
What is a Letter of Demand?
In the world of credit management and debt recovery, the Letter of Demand is often the first formal step taken by creditors to solicit overdue payments from debtors.
Serving both as a final reminder and a precursor to legal proceedings, these documents play a critical role in the financial dispute resolution process.
A letter of demand is often sent as a final warning before proceeding to take legal action to recover a debt. The contents of the letter clearly explain to the debtor about your dispute and why you wish to resort to a legal process for the problem.
The letter of demand often contains specific details like the amount the creditor is suing for. It also mentions about the relief the sender wishes to seek through the intervention of the court.
Benefits of sending a letter of demand:
While no creditor wants to reach this stage in their debt collection process, legal routes are often very helpful when all other means of persuading a debtor fail. Following are the key advantages of sending a legal letter of demand:
- Gives out a simple and straightforward message that you are no longer ready to wait.
- Gives the borrower one last chance to pay back before proceeding to take a strict legal remedy.
- Helps to uphold goodwill and maintain a positive working relationship between the creditor and the debtor.
- Is powerful evidence if you are planning to take further action.
The document is usually sent by registered post or by hand in order to have a proof of delivery.
Things to consider before sending a letter of demand
The use of the Letter of Demand should be seen not only as a stepping stone towards legal recovery but also as an opportunity to resolve disputes amicably.
By clearly stating the debt and the consequences of non-payment, creditors can often motivate debtors to settle their dues without the need to escalate to court proceedings.
Before sending a letter of demand, it is crucial to verify your contractual agreement with the company or the person who owes you money. Make sure that the letter of demand is sent to the correct person or company.
The demand should be precise as per the terms and conditions of the contract with appropriate signatures and dates put in. Additionally, ensure that the letter of demand mentions the payment terms and the due dates in clear terms.
You may also want to exhaust all negotiation possibilities and undertake a background check before proceeding to take the legal step.
How to write a letter of demand?
If you are at a stage of writing a letter of demand to your debtor, it is advisable to consult a debt collector company for carrying out the job. A letter of demand is a very precise document which needs to be carefully drafted to avoid any misrepresentation. Sending a letter of demand wrongly can also subject you to a counter-suit for defamation.
The details to be included are:
- Debtor’s information – details of the sender or on whose behalf you are sending the letter, including full name and address.
- Description of the debt. This includes how much money is owned & reference to substantial evidence to support the matter of fact, such as contractual agreements, e-mails, invoices, other written agreements, etc.
- Amount of debt – a clear statement of the amount owed.
- Date of the letter of demand.
- Date from which the debt was due – a reasonable but firm date for payment.
- Possible consequences of non-payment – legal action could be taken.
- Tone and language – The tone should be firm but professional, maintaining a balance between assertiveness and legality.
Start by giving a brief history of the dispute.
The language should be understandable, clear, and concise. Clearly mention the details of the debt, such as when & for what it was incurred. Confirm that the debt has not been paid even after several attempts to communicate with the debtor via phone, email, etc. It may be helpful to attach proofs of repeated reminders.
You may also want to attach proof of the debt, such as contracts and invoices.
Additionally, do not forget to mention the consequences of non-payment.
For example, once the payment period has expired, you may go ahead with court action without giving further notice, or if you are willing to compromise for a lower amount, do mention that as well.
Organize the letter chronologically as it would be easy for the reader and any court eventually to understand.
Things to avoid while writing a demand letter
While writing a demand letter, it is crucial to avoid the use of any language that will exhibit your anger or frustration. Avoid disparaging or threatening the other person.
Displaying a hostile mood is most likely to lessen the chance of reaching an amicable agreement. The entire idea behind drafting the letter should be focused on showing the other person that you are serious about the situation.
Never take this as an opportunity to insult the borrower or create an adversarial relationship. In a scenario where the situation escalates to the court, the judge who will be hearing the case will read the letter and perceive you as unsympathetic.
How long should be the letter of demand?
There are no hard and fast rule regarding the length of a demand letter. However, the shorter it is, the better.
The message should be long enough to clarify to the receiver that you are serious about taking further action including a potential lawsuit. Ideally, it is better to keep the letter not more than a page in length.
This will also be helpful to the judges who are often extremely busy. They do not need to read an overly lengthy letter when considering your case.
The letter should be dated appropriately to let the debtor know what the deadline is.
Once the letter is ready, make several copies of the letter for future use and reference.
When should I serve the Letter of Demand?
For many of you, a letter of demand will be a last attempt to get back the money without court intervention.
A letter of demand helps to catalyze the pressure you are putting on the other party to repay back the money if the borrower didn’t respond to any of your emails or phone calls.
A letter of demand should be the final letter you send to a person who owes you money.
Sometimes, a demand letter can be detrimental to business relations. It is therefore recommended to use this only as a last resort to regain an unpaid debt, when all other methods of communication have failed.
A debtor’s response after receiving the demand letter will help you to gain insights into why they are reluctant to pay the debt. This will be helpful in deciding the further steps of action.
How to serve a Letter of Demand?
Once you have written down the letter of demand (LoD), the next step is to issue it to the opposite party. There are several prescribed means to serve a demand letter. These include delivering the LoD by registered post, fax, by hand, etc. to the last known or a specified address.
How to verify the address of the debtor?
Verification process depends on whether the debtor is an individual or a registered company. Following are the search processes adopted for each:
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For individuals:
At the National Registration Department (NRD), run an NRIC search. This will help to determine the residential address of the debtor. For this, an application has to be made along with a certain fee.
The reports will be made available generally within 7 days of application.
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For companies:
The process is somewhat similar to that for individuals. Here the search has to be done on the Companies Commission of Malaysia (CCM) website, where the registered address of the companies is made available.
No matter what medium is used for issuing the letter, the following points need to be noted:
- Time, place and date of posting
- Complete list of all the demand letters which are issued
- Method of delivery
- If the delivery is made by hand, details of the person who have done the delivery
Through post- Registered posts will have all the necessary tracking details to ensure that the letter is handed over to the recipient as they will usually have to sign a form upon reception.
A certificate of posting can be obtained concerning each individual demand letter, which has been sent through the post. An affidavit of service should be sworn by the person who has actually done the posting.
Serving the letter by hand– An affidavit of service should be sworn the individual who has given the letter. This should include the approximate time, date, and address of delivery.
What next?
Once you have issued the letter of demand, you should give the debtor a considerable period of time before initiating a court action. This is required to show proof in the court that you have given a reasonable time-frame for the opposite party to pay back.
Irrespective of how many demand letters you have sent, the debtor should be given a time period to pay back. The time period can range from 7 to 21 days, which would be a fair opportunity for the debtor to respond even if he is out of town.
Following up on the letter of demand
After a Letter of Demand has been sent, it’s important to monitor the debtor’s actions. Creditors should document all communications and responses, as these can be critical if the case progresses to court.
Monitoring debtor’s actions post-LoD
Keeping a log of all follow-up attempts is not only good practice but may also be legally required to show diligent effort to collect the debt before taking legal action.
Still no sign of payment- what do I do next?
Setting clear deadlines and following up promptly if those deadlines are missed sends a message of professionalism and determination.
Once you have given enough time for the debtor to pay back the money and there is still no sign of payment, a suit can be filed in the court of law.
In Malaysia, the Rules of Court 2012 provides several short cut remedies such as “Summary Judgment” for a favorable judgment if all the essential material proofs are presented. Even if there is a lack of sufficient evidence for summary judgement, the usual trial can be initiated.
Steps to take if the letter of demand is ignored
If the debtor does not respond or refuses to pay after receiving a Letter of Demand, the next steps may involve initiating legal proceedings.
Before jumping into the legal fray, it’s worth exploring alternative dispute resolutions. These options can save time, money, and business relationships.
- Mediation and arbitration options:
Mediation or arbitration can be an effective way to come to an agreement. They are typically less formal than court proceedings and can lead to a binding agreement.
Additionally, various professional debt collection agencies in Malaysia serve as the middleman, working on behalf of the creditors looking to reclaim their money in a lawful manner.
- Payment plans and settlements:
Offering a payment plan or agreeing to a settlement amount can also be a practical solution that ensures at least partial debt recovery.
If these alternatives do not work, the creditor will need to file a claim in the appropriate court, which may lead to a trial or judgment.
Key takeaways:
- A Letter of Demand is a crucial tool in debt recovery.
- Effective drafting can secure a faster resolution to financial disputes.
- It is a precursor to legal action, indicating serious intent.
- A well-crafted Letter of Demand not only outlines the creditor’s claim but also serves as a legal notice that can be presented in court if the dispute escalates. Its effectiveness lies in its ability to prompt payment, avoiding the need for further legal action.
Final thoughts
A demand letter is a great way to demand money back without having to proceed with legal action.
The proactive use of a letter of demand can streamline the debt recovery process. When paired with thorough follow-up and preparation, it can lead to successful outcomes without the need for costly and time-consuming legal battles.
Based on the reaction of the receiver, it will also help to strategically plan the next course of action to bring out a fast solution.
However, to ensure that your letter of demand is precise and well drafted, it is best to consult a reputed debt collection company.
