Debt collection 101: demand payment

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Someone owes you money and you want to be paid.  You may have lent them money or they may owe it to you under an agreement e.g. unpaid rent, or goods supplied on credit.  How do you get the money from them?  Can you make them pay?  A common first step to recover a debt is to write a letter demanding payment.

A “letter of demand” is a formal way of demanding payment. The letter will usually include the following information:

  • Identify the debtor. State the debtor’s name and address.  If a company owes you money, address the letter to the company’s registered office.  The address of the registered office can be found by searching the Companies Office website.  Send a copy of the letter to the directors for their information. The directors and their addresses are also available on the Companies Office website (by searching the company’s name). If more than one person owes you for the debt, send a copy to each person.
  • State who you are in relation to the debtor.  E.g. I am the owner of 2b Lawyer Lane, Whangarei, your landlord.
  • The reason the debtor owes you money.  E.g. they have failed to pay you rent by the due date.
  • The documents or circumstances you rely on to show the debtor owes you money. E.g. residential tenancy agreement dated 1 January 2011.
  • The amount of money owed by the debtor: the total amount owed (including interest), the amount the debtor has paid, and the amount of money the remains unpaid. This is the debt now due.  This information is commonly shown in a table or on a separate page.
  • The date when the debtor has to repay you, before you take further action.  If a company owes you money, you should make this time frame at least 15 working days from the date of the letter of demand. This is one of the criteria required for a statutory demand.  Be clear that the debtor must pay you by this date.  State the exact amount and the exact date.
  • State how the money has to be paid e.g. directly into your bank account (give your bank account number or attach a bank deposit slip).  Alternatively you could use your lawyer or accountant’s trust account for this purpose.
  • State what is going to happen if you are not paid by the due date, or if the debtor does not enter into a suitable arrangement with you.  (This is another criteria for a statutory demand.)
  • Point out that you will have no choice but to commence legal proceedings against the debtor to recover the debt.  That means filing a claim in the Disputes Tribunal (if the debt is disputed) or the Court. If an individual owes you money this will mean you are starting the process of making them bankrupt. If a company owes you money this will mean you are starting the process of putting the company into liquidation / receivership.
  • If you are not sure whether the debt is disputed, you could include a clauses saying that if the amount is not paid you will assume that the debt is disputed. That may give you something to rely on when bringing a claim in the Disputes Tribunal.
  • State that if you have to take further action, you will claim costs and interest in addition to the sum currently owed.
  • You may also like to point out that if the debt is not paid, you will register the debtor’s name on the nation-wide Veda Advantage (Baycorp) credit check system.  This listing will remain in place for 5 years and will be notice to others that the debtor has not paid the debt owed to you. This could have an adverse impact on their credit rating.
  • Include your name, address, phone number and signature as well as the date.

Once you have sent the letter, remember to enter the due date in your calendar.  A letter of demand should not be full of empty threats.  It is important to take the action you threatened in the letter if you are not paid.

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