Almost every business in the world is going to experience a time when a customer fails, refuses or neglects to pay an invoice, and the business is then left with a bad debt in their books. The issuing of a legal letter of demand is traditionally the first step taken in order to recover that bad debt from the customer, and is sometimes a prerequite step before you can commence legal proceedings against the customer in a Court of law.
The letter of demand traditionally sets out the facts that gave rise to the debt, advises the customer as to certain rights that the customer has, and then demands payment of that outstanding debt by a certain date. The letter of demand can also advise the customer that the business will accept payment of the debt by way of monthly instalments, however this is not necessary.
There are occassions where legislation requires you to include certain statements in a letter of demand. If you don't, then you won't be entitled to sue the customer until you've complied with those requirements!
Some things to think about:
1) Where you have a credit agreement, section 129 of the National Credit Act requires you to advise the customer of certain rights BEFORE you are legally entitled to institute legal proceedings (sue the customer / summons), and if you don't comply with sending the customer a section 129 letter of demand then your case will most definitely fail.
2) Where you have an agreement (loan agreement) and there was never a date of repayment agreed upon, then you need to FIRST demand that the borrower repays you the loaned amount. Legally speaking you are putting the borrower into mora - which means that the debt is due and owing. You therefore need to send a letter of demand to the borrower in which you demand the repayment of the loaned amount within a certain period, failing which you will be entitled to sue the borrower!
3) Sometimes you may want to send out a letter of demand in order to let the customer know that you are serious. Often a customer will pay proper attention to a letter of demand when it comes from a lawyer. Other times just a properly worded letter will be enough. You should therefore ask an attorney / lawyer to help you draft a letter of demand.
A letter of demand is a very important legal document, as it sets out the background of the dispute and formalises many issues. It can also help to assist in settling the dispute BEFORE you have to approach the Courts for assistance!