As I explained in a previous post, a “formal demand letter is just that: a letter written, usually by an attorney or law firm, demanding that the recipient take or cease certain actions, or pay some amount of money.”
Most often, demand letters threaten legal action and revolve around some alleged breach of contract or a personal injury, but not always. Getting one is not a pleasant experience. It can scare you, anger you, upset you, and intimidate you—often all at once.
The real question then is–what do you do when you receive one? What is the best way to deal with a demand letter?
Here’s your answer.
How To Respond to a Demand Letter
There are all sorts of reasons why a small business may receive a demand letter. Most often, it is because the other party believes that you owe them money. For example, it could be due to a:
- Contractual dispute
- Labor disagreement
- Personal injury
- Cease and desist demand
- Demand for an explanation (which is just another type of demand letter)
Whatever the case, there are right ways and wrong ways to respond. Here are the right ways:
1. Take it Seriously
Now, if you receive a demand letter, then we already know at least this: You and the other party have some sort of relationship that went sour, as well as some sort of agreement that went south. Otherwise, that other person would not have gone through the time and effort to hire an attorney to draft the letter, or sit down and draft it themselves.
Either way, if you receive such a letter, someone not only thinks you done them wrong, but further, they think that the demand just might help resolve the issue in the way that they want.
What we also know is they are taking the dispute seriously, and they want you to too.
2. Respond Within a Week
It might be tempting to ignore a demand letter, but that will very likely lead to some sort of legal proceeding.
It might be a small claims case, or a larger lawsuit, or an arbitration. Whatever it is, rest assured your problem will be more complicated and take longer if you ignore the demand rather than simply respond to it.
So, yes, you should respond to a demand letter. When? There are two answers to this. First, if the demand letter gives a deadline, then that should be your deadline. Otherwise, if no deadline is mentioned, then sooner is better than later—a week, tops.
3. Objectively Analyze the Situation
What you need to do is think critically, and to the extent possible, objectively. What, really, is your fault? Who, really, is to blame? Truthfully answering questions like these can save you a lot of time and money.
You know the situation best. You know the facts. You know what you did right and wrong, and what you think they did right and wrong. And of course, you are human, meaning, in all likelihood, you think you are in the right.
Maybe you are. But maybe you aren’t.
So even before you hire an attorney to help your case (which I would strongly urge you to do) or handle the situation on your own if you choose not to, you yourself need to analyze the case.
An Example of How to Be More Objective
Let’s say that you bought 100 widgets from Widget Co. Unfortunately, due to supply chain issues, the widgets were delivered a few months late, so you decided to pay only half. As a result, you received a certified demand letter asking for the other half.
Sure, you might feel righteous that the delivery was late and that that may have hurt your business a bit, but unless you had a “time is of the essence” clause in your widget contract, you probably owe Widget Co. 100% payment because there wasn’t a breach of contract. It does you little good to think emotionally and convince yourself that you are in the right when, legally, you probably were not.
Analyzing the problem incorrectly or emotionally, therefore, means that Widget Co. would be forced to sue you, and make no mistake, they very likely will. Then you would not only owe the other 50%, but interest too, and probably an attorney’s fees on top of that.
On the other hand, maybe you are right. Maybe you don’t owe the other side anything. Great. But either way, it behooves you to be objective to the extent possible.
And then go hire a lawyer.
3. Hire a Lawyer
I know, you don’t want to hire an attorney. I get it. No one likes legal fees, and getting legal help is a pain in the rear. True that. But do you know what is a bigger pain in the rear?
Yep, you guessed it. Getting sued.
If you receive a demand letter, hiring legal representation will help you in all sorts of ways. It will help you:
- Better understand the merits of the claim
- Have the other side take you more seriously
- Know your options
- See whether or not you have a counterclaim
Having a smart lawyer analyze your situation both legally and objectively, and then having them respond on their letterhead, is your best chance of resolving this dispute before it really gets out of hand.
Your lawyer is your hired advocate. Doesn’t that sound nice, having someone on your side? Just as you were upset and maybe a tad intimidated when you received a formal, legal demand letter, so too will your adversary be the same when he or she receives your formal, legal response.
None of these benefits will come your way, however, unless you get legal representation. So go ahead, find some good lawyers, make some appointments, get a free consultation or two, and get yourself some expert legal advice.
Why You Should Consider Settling Your Case
Usually, getting some of what you want, or paying a little more than you think might be fair when settling, beats a lawsuit. Lawsuits are a declaration of war. They’re expensive, time-consuming, and messy.
Settling means no side gets exactly what they want. The truth is , one side is rarely 100% percent right or wrong. But I strongly suggest that you look to settle, and that means, compromising. Clearly the other side wants to do the same, otherwise they would have already sued.
If you can avoid a lawsuit, then avoid it. How? By responding to the demand letter in a way that invites dialogue.
What Should Be in Your Demand Letter Response?
Your letter should counter their claims to the best of your ability and explain, without giving everything away, why you are right. Why not make your demand letter response as detailed as possible? Let me explain from experience.
When I was a young attorney, I once replied to a demand letter by laying out all the facts and all of our best arguments. It did not work and the case went to trial. Unfortunately for my client, the other side was ready; they already knew our best facts and my best legal arguments. Needless to say, we lost.
So save some of your arguments for the courtroom, and some for the letter. Whichever counterclaim you choose, make your case.
When countering the claim you’ll need to include:
- An acknowledgement of your receipt of their letter
- Your analysis of the relevant facts. Be sure to be succinct, not verbose.
- Your basic reasoning as to why you are in the right (if you think you are.) Again, don’t share too much.
- Your counteroffer and a reasonable ‘respond by’ date
You (and hopefully your lawyer) should respond in a professional, timely manner. Attempting to sound reasonable, yet firm, is smart because not only does that tend to work, but your letter could become evidence in a trial down the road.
Demand Letter Response Template
Not everyone can hire an attorney, and admittedly, there are times when hiring a lawyer may not be necessary. If you are, for whatever reason, representing yourself after receiving a demand letter, here’s an example of how you might want to respond.
You can use this as a template and download and edit it via Google Docs or you can simply click "Copy" below to get the text.
Note: Be sure to have your response letter delivered certified with a signature required.
Text Copied to Clipboard
November 1, 2022
Dear Mr. Snyder,
[Acknowledge receipt of their letter.] I am in receipt of your letter dated November 1, 2022. In that letter, you demanded $500 as payment in full for the 100 widgets delivered to our office, back on June 12th.
[Put forth your best, good-faith version of the facts, but be brief.] As you well know, we ordered those widgets from you on March 1, and you told me over the phone that we should expect delivery in “a month, six weeks max.” That means that the latest we should have received them was mid-April. But, as we both well know, that did not occur. We did not receive the promised widgets in April or in May. We did not get them until mid-June (see attached receipt).
[Share how reasonable you tried to be.] Not having those widgets on time really put us in a bind. Your lack of responsiveness did not help matters. On the other hand, we did everything initially asked of us in the contract, including paying 50% down upon ordering, i.e., $500.
[Share why you think you are right.] I understand that you think we owe you the other $500, but we think you should have delivered the widgets on time. We lost money by not having those widgets on time.
[Make a counteroffer, give the response a time frame, and look to negotiate.] Nevertheless, in order to avoid litigation, we hereby offer to pay an additional $250 as payment in full. This offer is good for two weeks from today.
[Sound tough!] Should you not accept within the amount of time stated, rest assured we have other legal remedies and an alternative course of action ready at our disposal.
Very truly yours,
Simon Helena, President
What Is the Next Step After a Demand Letter?
A counter to a demand letter is, in essence, a demand letter in itself. Your letter will do what theirs did, i.e., explain why you are right, why they are in the wrong, and what you consider a reasonable conclusion short of litigation.
Ideally, after your letter is received, you will enter into negotiations aimed at resolving the dispute. Remember, a good negotiation usually is one where no one gets everything they want.
Receiving a Demand Letter Doesn’t Have to Get You Down
No, no one likes getting a demand letter, but, by the same token, no one likes getting a solid response to their demand letter either. If you and/or your lawyer respond in a timely manner with a strong argument and counteroffer, you will be putting your best facts and arguments in front of your opponent, thereby giving them something to be uncomfortable about.
And in a business dispute, that’s not such a bad thing.
Why? Because that is what puts you in a stronger negotiating position.