Think about what happens when you don't pay a bill: You usually just get another bill telling you that you didn't pay the last one. Ignore that bill, and here comes another one -- and another. At some point, though, the company you owe money to will get tired of fooling around and send you a letter telling you to pay up or suffer consequences. Such "demand letters" include a deadline for making good on the debt. A common time frame is 10 days.
Purpose
The typical 10-day demand letter is written with two audiences in mind. The first audience, obviously, is the recipient -- the person who owes the money -- and the goal of the letter is to get that person to make good on the debt within 10 days. According to the legal information site Nolo, a demand letter produces the desired result about one-third of the time. This means that the other two-thirds of the time, the company trying to collect has to take things to next level. Enter the second audience for the letter: the legal system. If the dispute winds up in court, the letter becomes evidence. State law may require that a demand letter be sent before a case can go to court. Even when a demand letter isn't legally required, it's still a chance for the sender to lay out its case for a judge in advance.
Elements
A 10-day demand letter starts with a review of the details of the dispute: the nature of the transaction that produced the debt, when the debt was incurred and the dollar amount of the debt. The letter may recap all previous attempts to collect the debt. The letter gives the recipient 10 days from the date of the letter to make good on the debt. This sets a firm and unmistakable deadline. The letter then describes what will happen if the deadline passes without payment.
Senders
Anyone who is owed money can send a demand letter. If you buy an item on credit at a store and don't pay up, the store obviously can send you a demand letter. However, if a store owes you money for an item you paid for but returned, you can send the store a demand letter. Companies sometimes send out demand letters themselves, or they have their lawyers do it. Collection agencies commonly send out 10-day demand letters -- or five-day or seven-day letters -- as a free service for their regular clients.
Seriousness of Purpose
Demand letters demonstrate to the recipient that a company is serious about collecting a debt. By the time a demand letter becomes an option, a company has likely already sent several bills, invoices and past-due notices. Simply sending another bill is unlikely to generate any action; that bill will just wind up on the same pile or go down the same hole as all the rest of them. A demand letter signals to the recipient that the company is done waiting for a check to come in and is now actively pursuing the money.
References
Writer Bio
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.