August 23, 2017  
 
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Business Debt Collection

 

Sample Debt Collection Letter

Dealing with deadbeats is a pain. When business owners do work and don't get paid, what are their options? This article includes the text of a sample letter demanding payment. It's a real debt collection demand letter that has been sanitized to not mention any real companies.

Unfortunately, there's a disgusting breed of scammers out there who make a living by buying products or services from small businesses and then never pay for what they've purchased.
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We are talking about businesses that cheat other businesses. We're not talking about individual scam artists.

One of our portfolio companies recently ran into this challenge. After five years in business, our marketing and design firm had never been stiffed on an invoice. Recently, that run of luck changed for the worse with a client-refuses-to-pay situation.

After incurring $19,000 in professional services fees and $30,000 in printing fees, the client decided not to pay. They had made a partial payment previously, so it wasn't a total loss - but, unless collection is forthcoming, this will be a big money loser for our marketing firm.

By way of background, the marketing firm was contracted by a golf resort and luxury homes development company to assist with a variety of marketing tasks. Our firm executed well on the contract, receiving praise from the client's marketing manager.

In the eleventh hour of the project, one of the client's younger partners jumped into the mix and started to mess things up...questioning detailed elements of marketing tactics and the deliverables.

In the end, that particular client partner decided that our marketing firm should not be paid for a large portion of the work that was done. He also fired (or otherwise induced the termination of) the client manager we had been reporting to. The partners then fired (or otherwise induced the termination of) the person who our client manager reported to.

This non-payment collections scenario raises a number of interesting questions. Should you hire a lawyer to collect money? Should you hire a collection agency? Can a marketing firm's webmaster take down a website for non-payment? If a company makes a partial payment for design work but refuses to make final payments, do they have the rights to use any of the deliverables they received? How can you protect yourself against deadbeats? What does it mean to attach somebody's assets for nonpayment of a debt? How do you sue somebody who refuses to pay for products or services and how much does it cost to sue somebody? What is the legal concept of apparent authority and how does it collections in this particular case?

In the future, we will be writing a number of other articles addressing these business debt collection topics. For now, here's the sample demand letter. If you have comments or questions on it, please contact us.

Sample Letter Demanding Payment

After months of trying to collect payment and after consulting with lawyers, the marketing firm sent the demand letter below. If you have been stiffed by a deadbeat client, this may be a useful example that you can use.

January 22, 2007

Melanie,

After months of futile attempts at collecting payment from ACME Inc., Firm Design is giving final notice before we commence legal proceedings.

You have until Friday of next week to make full payment. If payment is not made by noon central time (1 p.m. eastern time) on Friday, February 2, 2007, we will commence legal proceedings.

It is our legal counsel's strong opinion that you have breached our contract and will be held liable by the Illinois civil courts for the full amount owed plus late fees, as outlined in the contract. The work was done to the satisfaction of Karen Client and Bob Manager, who had apparent authority over the project; both of them are willing to testify on our behalf. Moreover, you will likely be held liable for all attorney fees because we will assert in our filing that you have engaged in a pattern of fraudulent behavior, in which you enter contracts with vendors, accept delivery of services and then refuse to pay.

As is our right, we intend to make our legal proceedings known to key entities, including the media in Townville and the surrounding area. This media outreach will be limited to statements of fact. I am still discussing with my counsel whether we can also distribute this information to the Gold Partner organization and to financial institutions that may have a vested interest in assessing the impact of such information. As a PR firm, I assure you we are very good at spreading the word about such things but at no point will we engage in libelous behavior.

It is also our assertion that you do not have any rights to the work that we completed on your behalf until we receive full payment. This would include the ACME Inc. logo, the use of the AcmeMadeUpNameInc.com domain, lead information that came via the site, and all other work that was done by Firm Design during this engagement.

Given that we have no use for the AcmeMadeUpNameInc.com website, we assert the right to take the site down, use it for other purposes, or sell it to the highest bidder to recover the substantial service fees we lost on this project. We are under no obligation to give you any notice on this action - the domain name and the site content belong to us.

We are in touch with Big Time Printers and others who have been adversely affected by your predatory business behavior. There is an ongoing discussion amongst the parties about filing a petition for involuntary bankruptcy. I can also tell you that service on this suit will be wide-ranging because of the ambiguity as to your legal formation and who the member partners are - for example, we are unclear as to whether Arnold Gold is an equity-holding member of the group or not. We (and Big Time Printers in a separately filed lawsuit) intend to serve anyone who we believe may be an equity holder in the group or who may have benefited from the group's actions by receiving promises of equity or property.

All invoices, including finance charge invoices, are attached. Payment is to be made in FULL, in the amount of $52.701.59, through wire transfer, to the following:

Bank name: National Bank, Account number: 999000999, Routing number: 1345723

Again, the funds are to be in our account by noon central time on Friday, February 2, 2007. The amount of payment is non-negotiable.

Sincerely,

Derek Partner
Principal
Firm Design

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Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

Carolyn 7/29/2008

Thank you for posting such valuable information. Speaking as someone that has been recently forced into collecting a debt, this information is imperative.

John Martin 8/8/2008

Threatening to go to the media is going too far. Moving you from 'settlement demand letter' territory into extortion land. See the California case Flatley v. Mauro

Hugo 3/2/2009

This debt collection letter was very helpful. I recently found myself in a situation where I need to get a refund for some services that were done unnecessarily and without my consent. I used parts of this letter. I was successful in getting my refund. I have to disagree with the prior comment, I think the part in the letter about going to the media made a big difference. They really paid attention after I told them I was going to tell the media that they were refusing to pay me.

midas 6/23/2009

Saying you might announce the matter to the media is NOT illegal: We hear all the time on the news "ABC company filed a lawsuit in District Court over the $45-bazillion dollars still owed by XYZ,, Inc." While the "big" media usually chooses to use their airtime to announce huge lawsuits, the local, small-town paper loves to post the dirt on people for even a few hundred dollars. Either way, it is NOT libelous or slander if it is TRUE.

Michael 8/24/2009

Invariably, deadbeats engage services with the predisposition of getting something for nothing. Never let them get away with this. Regardless of monetary size, if nothing more, get a judgment. What comes around will prove to be invaluable future leverage.

Carolyn2 4/28/2010

I have a question for the readers. I, too, am trying to collect on unpaid invoices way overdue. The company that owes me does market research for some very large companies. They subcontracted out a portion of their work to me, and I worked directly with their major clients. They and their clients were pleased with my work. They keep saying they'll pay me by X date, the date passes, and the check never shows, and I just get excuses. The oldest invoice is about 150 days old now.

Here's my question. Is it OK to tell the deadbeats that I'll inform the end client that I haven't been paid if I don't receive payment within the next 10 days? I'm more than willing to follow through.

kudahijau 5/24/2010

carolyn, i guess it depends on the kind of relationship you have with your client's client. you can casually mention your stagnant payment if you're chummy with them, but if not then there's no point. you never know what kind of excuses your client can tell their client, & it might damage your reputation.

Botavaro 7/23/2010

Carolyn2, In the States, it is NOT unusual for certain big companies to pay extremely late. If I am hired by Pixar Studios, or IBM, or Acer Corp., or Nissan Motors, it would never cross my mind to think that they may not pay for their invoices... But because they are so big, some of them so bureaucratic, that many times they delay payments thinking that they can, and indeed they can... One thing I know for sure is that if you get upset and start yelling at people, they will never pay you back.

susie 8/5/2010

carolyn2& Botavaro -- Yes, but these "big companies" who HAVE the resources to pay timely, put huge strain on small businesses..."because they can" It is disgusting - we deal with it too, but I would not say it's ok just because they are big.


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