Every construction professional has encountered or will encounter a payment dispute at some point in their jobs. Payment issues often crop up in the construction industry, and running a construction business means knowing how to deal with clients who do not pay up on time or at all.
If you’re engaged in a payment dispute and are looking to secure payment from a delinquent client, you are well advised to write a formal payment demand before escalating the issue to a legal battle. Strong payment demand letters can be effective enough to encourage your client to produce payment, and they also have other advantages that can benefit your payment claim.
This guide will walk you through the advantages of serving a formal demand for payment letter as well as the steps and best practices that you must keep in mind.
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What is a demand for payment letter?
A construction demand for payment letter is a letter that expresses your demand to seek payment for the work that you have done on a project.
A construction demand is usually served when a payment issue has arisen in your project and efforts to request payment from your client have not been received well. While a demand letter sounds like you are launching a threat against your client, be aware that payment demand letters are not extortion attempts.
When you send a demand for payment letter, you are simply setting an ultimatum for your client for them to pay the invoices before you utilize formal payment collection methods. The most popular and arguably most effective among these methods is filing a mechanics lien, and most property owners are wary about having a lien recorded against their property.
Advantages of writing a payment demand letter to your construction client
1. Demand letters inform your client that you are willing to seek legal remedies if you do not get paid.
A construction demand is one way of letting your client know that you are aware of your right to file a mechanics lien or a bond claim and that you are willing to enforce it if you do not get paid.
In large-scale projects, property owners and even general contractors may lose track of who are working for them and which parties are still yet to get paid. Writing them a construction demand for payment letter may be a good way of getting their attention and letting them know that you are expecting to receive your payment at some point.
2. Demand letters can prompt payment from clients.
Strong payment demand letters can be very effective in forcing clients to produce payment. Some clients have simply lost track of which parties are yet to be paid, while others do not fully understand the consequences of non-payment until they have read a construction demand notice.
A strong construction demand letter asks for a specific amount and sets a specific payment deadline, and it also states the steps that you will be taking in the event that you do not get paid. These steps usually involve filing a mechanics lien or bond claim, or initiating a lawsuit to have a property foreclosed. Once clients know about these consequences, they have more reason to settle their debts.
3. Demand letters can act as your Notice of Intent to Lien.
Some states require their contractors, subcontractors, and material suppliers to serve a Notice of Intent to Lien before a valid mechanics lien may be filed. Your construction demand may act as your Notice of Intent to Lien because this generally contains the same facts and statements.
Like a Notice of Intent to Lien, a construction demand letter also sets an ultimatum for a client to settle their outstanding debts. Failure to do so will result in a mechanics lien or a bond claim being filed, and so your construction demand letter may fulfill not only its intention of demanding payment but also your legal requirement to protect your lien rights.
4. Demand letters may be used as legal evidence in court.
Ideally, you will receive your payment not long after you send your construction demand letter. However, the payment dispute may be escalated to the courts in case your client decides to contest your claim or if they simply do not have the resources to produce payment. In this scenario, your construction demand letter may be admitted as legal evidence in court.
Note that a good construction demand letter narrates the important details of the payment dispute, including the amount owed and the provisions in the contract that you signed with your client. A strong construction demand can therefore strengthen the case you will be making in court.
How to write a construction demand for payment letter
1. Use a formal business letterhead.
The very first step in writing a construction demand letter is making sure that you have a formal business letterhead that you can use. A letterhead is a logo that is specific to your company, and it must be placed at the very top of your document.
It goes without saying that your construction demand must be typewritten. These are obvious details but they ensure that your construction demand looks professional. Writing your letter by hand may also work, but it does not command the same seriousness that a typewritten letter does.
A plain document can also work, but a letterhead adds a formal look to your payment demand.
2. Include the facts that are relevant to your claim.
Your construction demand letter must be facts-based, which means that you must gather the important details that lay out the nature and circumstances of the payment dispute. These details may include the following:
- Amount owed
- Time period covered by the amount owed
- Date the invoices were issued
- Number of days/months by which invoice is overdue
- Amount of late fees, if applicable
- Date a legal contract was signed, if available
Knowing these pieces of information is very important not only in writing a construction demand notice but also in filing your mechanics lien or bond claim. When your books are organized, you will have these bits of information at your disposal.
3. State your specific demands and deadlines
A strong construction payment demand must be specific with its demands and deadlines. Your letter must, therefore, set the amount that you need your client to pay, as well as the date by which you need to receive the money.
These details should be sorted by your party, and they should be reasonable. For instance, do not give your client only one or two days to settle payment. You may also include other demands that you deem reasonable, including specifying a method of payment. Some parties are not comfortable receiving checks, so you may state that you prefer to receive your payment via cash or bank transfer.
4. Mention your willingness to explore legal remedies to get paid.
This is another very important step: you must state in your construction payment demand your intention of filing a mechanics lien or bond claim in the event that debt is not settled within the deadline that you set.
This step is necessary because it lets your client know that you are aware of your legal rights and that you are willing to exercise them. You may state specific legal provisions to further emphasize that you have been diligent in protecting your lien rights.
5. End with a note that expresses your willingness to settle the dispute without escalating it to court.
When writing a construction demand letter, try to read your letter from the perspective of your client. While you may be in conflict at this point, your letter must still express that you are willing to settle the dispute between yourselves without having to escalate the issue further.
This implies that you are open to communicating with them and finding ways to get your payment before you officially file a mechanics lien. This part shows that you are being cordial, which could help in paving the way for a less costly settlement of the payment issue.
Best practices when writing a construction demand for payment letter
1. Focus on the facts and not on personal attacks.
Do not include personal attacks in your construction demand letter. It may be tempting to do so, especially if the relationship with your client has already turned sour, but be aware that these letters may be admissible as evidence in court.
Stick to the facts and focus on the goal: You want to receive a specific amount as payment for your work, and you want to receive it by a certain date. Adding unnecessary personal attacks will not make your payment come any quicker.
2. Make the letter look and sound formal and professional.
Professionalism is very important in this business, so make sure that your letter is written in proper format and in proper language. Use formal words and make sure that they are spelled correctly. Have your letter proofread by a different party so you know that your demands and intentions are communicated as intended.
Typing the letter and using a business letterhead also help in making your construction demand notice look professional.
3. Keep the letter short and straight to the point.
Aim to keep the letter under a page – anything longer poses the risk of being unread and completely ignored. Again, always keep your client in mind when writing your construction demand letter. If you are not willing to read through a five-page letter, then do not write one either.
4. Keep copies of your letter for future reference.
Before serving your construction demand letter on the proper parties, make sure that you have made a copy that you can keep for your own documentation. This letter should have some of the important details that you may need in filing a mechanics lien, and it could also be presented as evidence in court in case of a foreclosure hearing.
Sample Construction Demand for Payment Letter
The following construction payment demand will give you an idea of what your letter should look like. You can always tailor it to fit your specific circumstance.
To: (Information of your Client)
Re: (Project Name and Your Information)
Amount Due: $ ________
Dear Sir / Madam:
This letter serves as a formal written demand for full payment of the above-amount that has been overdue for (number of days/months).
Attached to this letter are copies of the invoices that have been issued for the services that we rendered on (dates covered by the debt). Per our records, these invoices are yet to be paid. Note that should payment not be released within (number of days or specific date), we will be initiating appropriate measures to collect our compensation.
Please be advised that (specific statutory mechanics lien provision) allows contractors, subcontractors, and material suppliers to record a mechanics lien against a property to secure payment for their services. Consider this letter a formal notice that we are willing to explore such option if the debt is not settled within the aforementioned deadline.
However, we are hoping that we could settle this payment concern among ourselves and refrain from escalating the dispute further. Please acknowledge receipt of this letter, and kindly let us know of any possible discrepancy or if payment has been delivered.
Your Name and Title