How to Write a Demand Letter for Payment (Free Template)

Are you a business owner that is having trouble getting a client to pay outstanding invoices? You have the option of filing a small claims lawsuit against clients who refuse to pay. But before you go to small claims court consider sending a demand letter for payment. In this article, we offer suggestions, examples, and even a free sample of a strong demand letter for payment.  

Did you know we have a free tool powered by AI that helps you create a demand letter? Check out our demand letter tool.

Why is a Demand Letter for Payment Important?

A strong demand letter for payment can be a very useful tool for business owners trying to collect outstanding invoices from clients. Here are four good reasons to first send a demand letter for payment before suing your client in small claims court: 

1. Depending on what state you are filing a small claims court lawsuit in, you may be required to demand payment from your client before filing. A letter of demand for payment is an effective way of completing this requirement.

2. A demand letter for payment signals to your client that you are serious about the problem and are willing to spend time and money to receive outstanding payments. 

3. Sending a written demand letter for payment assures you there is a record of how much your client owes you and why they owe you that amount. So while demand for payment can be made orally, we recommend written demands. There is also no restriction on demanding payment via text message, but writing a letter can sometimes be very effective as it is more formal and your client will take it more seriously. 

4. The demand letter for payment may lead your client to pay you without having to take them to small claims court!

Do I need to hire an attorney to write a legal demand letter for payment? 

Many of our clients ask us if they need an attorney to write a demand letter for payment to a client. You don’t need an attorney to write a demand letter for payment to a client. Further, going to an attorney may add unnecessary costs and when the amount your clients owe you may be less than what an attorney would charge, it wouldn’t make sense to hire an attorney. But don’t worry, we cover how to write a demand letter below.

How to Write a Demand Letter for Payment 

Unsure of what to include in your demand letter for payment? Below we have included a template demand letter for payment as well as some considerations.

Here are a few things to consider adding to your demand letter for payment:

• How much is the outstanding payment? i.e. how much does your client owe you for services rendered or products purchased?  

• What is your contact information? How can your client reach you?

• Where should your client send you the outstanding payment? 

• You may want to consider giving your client an option for payment using a payment plan.

• Consider giving your client 14 days to respond to you. Include this in your letter, and state that if they do not respond within that time, you intend to sue them in small claims court. 

Once you have sent a demand letter for payment, keep it for your records. You can bring it to the small claims court hearing and show it to the judge. This is especially handy if your client states they didn't receive the letter or didn’t know they owed your money.

Sample Demand Letter for Payment Template

Below is an example of a demand letter for payment that can be used as a template for your demand letter. This free sample demand letter for payment is for services rendered by a shop owner. Remember this is only an example of a demand letter. Use as many case-specific details when writing your demand letter for payment. 

How to Send a Demand Letter for Payment 

We recommend sending your demand letter for payment via email or mail. For letters that you mail, consider the following:

• Tracking. Make sure to track your demand letter for payment. With tracking, you will know if the letter reached your client. 

• Signature Required. You do not necessarily need a signature request. When you send a letter with your client’s signature requested, the postal carrier must hand-deliver the letter and your client must sign the letter. 

Once the post office attempts delivery 2-3 times, the post office returns the letter to the sender as "undeliverable." We don't recommend sending demand letters to clients at a home address with a signature required. 

Next Steps After Sending a Demand Letter for Payment 

So you sent your client a final demand letter for payment and they have not paid their invoice, now what? You can take legal action for non-payment by filing a lawsuit in small claims court or consider sending your client to collections. 

Consider sending your client to collections 

If your client has not paid outstanding invoices even after sending notice in a  demand letter for payment consider sending your client to collections. 

Here are some frequently asked questions about collections: 

• What is a collections agency? A collections agency is a business that will call and send mail to your client with outstanding payments. 

• How much do collections agencies cost? Some collections agencies charge a set fee or a percentage if they are able to recover your unpaid invoices.

• What can debt collection agencies do and not do? The federal Fair Debt Collection Practices Act (FDCPA) limits what collectors can and cannot do. For example, debt collectors cannot use obscene language or threats of violence against the individuals they are trying to collect from. Depending on what state you are in there may be even more protections and rules than the FDCPA so make sure you hire a debt collection agency that is repudiable.

• What to keep in mind when sending your client to a collections agency. (1) You will get less than what you are owed because the collections agency has to charge you either a percentage of what they are able to collect or a set fee. (2) In general, there is a deadline to collect unpaid invoices from a client- this deadline is called the statute of limitations and it varies by state. In California, for example, you have 4 years to collect an unpaid invoice if your contract with your client was in writing and 2 years to collect an unpaid invoice if your contract was not in writing.

Consider suing your client in small claims court 

As an alternative to collections, you may want to consider taking your client to small claims court over the outstanding payments. Failure to pay lawsuits are very common lawsuits in small claims. 

How long after you send your demand letter for payment to your client to sue them in small claims?

Review your demand letter to understand how many days you gave your client to pay you or respond to you. We normally see 14 days. If you haven’t heard from your client or have heard from your client and they don’t want to pay you, then it is time to consider suing them in small claims court. 

How much can you sue a client for in small claims? 

Each state has a different limit you can sue a client for in small claims but they vary between $3,000 - $25,000. For example, in California small claims you can sue for $12,500 while in New York, the limit varies from county to county and can be between $3,000- $10,000. 

In general, if your client owes you more than the amount you can sue for, you can still sue for the maximum amount allowed, but you will need to waive any additional amount over the limit.

How much does it cost to take a client to small claims for outstanding invoices? 

The amount you will pay to file a small claims lawsuit against a client for outstanding invoices varies from state to state but generally is between $15- $75.   If you cannot afford to pay court fees, you can ask the court if they have fee waivers. 

You may also need to pay to notify your client that you have sued. This is called serving and ranges from $0- $125. The rules around serving are very specific in each state so make sure to review them. 

What is a small claims court hearing like? 

Small claims hearings are meant to be quick and informal. Here is what you can expect when you sue your client in small claims court: 

• Right before the hearing, the judge will ask you and your client to show each other the evidence you both have brought to the hearing. Remember to bring your demand letter for payment to the hearing as evidence!

• The Judge will ask you why you are suing your client in small claims court. The judge will then turn to your client and ask them to state their side of the story.

• The hearing could last around 15 minutes but every case is different and this depends on different factors. 

• The judge will ask your client to show evidence (invoices, correspondences, receipts, notices of the outstanding balance, etc.) they have brought to court that day. Sometimes the judge will keep the evidence, other times the evidence will be given right back.

• Very rarely will a judge tell you in court their decision immediately after the hearing. Instead, the judge will probably tell you and your client that the decision will be mailed to you both (which usually takes a few weeks or a couple of months).

How do I prepare for the small claims hearing?

To prepare for your small claims court hearing:

• Research the law. If you are unsure about laws on non-payment, or your rights as a business owner to collect for non-payment or overdue payments conduct your own research or reach out to an attorney.

• Prepare your evidence. Make sure you have the demand letter, invoices to your client, correspondences between you and your client, notices of payment due, receipts, etc. ready for trial. You want to have your evidence organized with titles, dates, and why that piece of evidence is important. All your evidence should be geared towards showing the judge why you are correct and should be awarded a judgment in your favor. If this sounds confusing or daunting let PeopleClerk help you with your evidence packet!

• Prepare what to say. During the hearing, the judge will ask your client why they are being sued. Be prepared to also answer why you are demanding payment from your client. Be specific about the amount you are owed and why they owe you the amount you are claiming.