In an ideal world, every person you lend money to will pay you back and every customer/client will pay you for your services. Unfortunately, we do not live in that world and people, for a variety of reasons, sometimes refuse to pay their debt and/or disagree with the amount owed. In these situations, most businesses owners often think about doing one of two things: (1) hiring a collection agency to go after their delinquent client or (2) suing the person in court. However, what they do not think about is sending a formal demand letter first which is not only required but can save them time and money. Let me now explain to you why.
A formal demand letter is a letter that informs the person owing money that a legal action will be taken if the debt is not repaid within a period of time (usually 5 days). It often includes information such as background facts, amount owed (based on evidence such as an invoice or an agreement), and the deadline for repayment. A demand letter should not be used as a threat or a blackmail. A properly drafted demand letter from a lawyer can be effective in encouraging the borrower/debtor to settle their debt and avoid litigation or similar recourses. On the other hand, not sending a demand letter before starting a legal action can prejudice you as it might show that you did not give the other party a last chance to settle the debt.
Ultimately, whether you decide to take the litigation or the collection agency route depends on the cost-benefit analysis of time and money that will be spent in collecting the debt. In most cases, cost of pursuing those routes can outweigh the benefit. A formal demand letter is not only a step in collecting the debt but also one which you may need to take before proceeding to one of those routes. From now on, don’t forget to send a formal demand letter.
This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Hugues today. 613-747-2459 ext.304, [email protected]