Why Demand Letters Don’t Work

It was not long ago that I sat in a room talking with a prospective client who retained me to do collections work for his medium-sized business, which was expanding from a regional business to what would become a national business. Among his concerns was how we would deal with his receivables, and whether it was practical to write demand letters in advance of filing suit. My answer, in short, was that demand letters are not at all practical, and are usually a waste of time and money. While I was able to dissuade my client from the idea of sending demand letters, this was not the first time I have dealt with clients who want demand letters sent, and it will probably not be the last. I have often wondered what a credit manager, or any other creditor, imagines that a demand letter will do or accomplish and suspect that some people believe that these letters are devastatingly effective, or at least have some effect. I would imagine that a new credit manager, fresh from business school or promoted from elsewhere in the company, would view the effect of a demand letter as something that strikes fear and trepidation into the heart of the recipient and mobilizes them to take action to pay the debt immediately. While this is a nice fantasy, it is also complete nonsense. Despite this, it seems to match up with many people's expectations of what a demand letter will do; such expectations, however, are usually not met and it is reasonable to believe that most debtors ignore and/or throw out any demand letter sent to them, if they even open the envelope.  Contrary to popular belief, little to no action is prompted and the debt remains unpaid. The fundamental problem with the demand letter is that we all get too much mail. Every day when I get my mail I am astounded by the sheer amount of junk mail that the mail carrier has to carry to my address. While I cannot remember the last time a friend or relative has actually written me a letter with pen and ink, I receive more magazines on a weekly basis than I care to count. As I am sure that I am hardly alone in this predicament, and as mass-marketers employ people whose careers are dedicated to getting me to open envelopes using one clever trick or ruse, or another, I have to imagine that a demand letter has no great chance of survival in a sea of this type of mail.  Furthermore, even if a demand letter were to be opened after making it through its competition in the mailbox, I cannot imagine that the letter will come as any surprise to the debtor or that it will suddenly prompt them to take action on the debt. In addition to the fact that a demand letter will likely not compel the type of action that a credit grantor envisions, the sending of demand letters can cause other problems. For example, in commercial situations, it is not uncommon for a clever debtor to file suit in some far-off jurisdiction against the creditor after receiving a demand letter. Clearly, the debtor knows what is owed but figures that the costs of the creditor retaining a lawyer in some far-away state exceeds the value of the debt. The clever debtor then will succeed in suing his creditor, thereby forcing his creditor to relent and leave the debt unsatisfied. There are also regulatory issues associated with sending demand letters. The Federal Trade Commission requires that an attorney writing a demand letter must have meaningful involvement in the case. This requires the writing attorney to have some knowledge of the case, as opposed to being a mere letter writer.  If the lawyer knows nothing about the specific case, and is merely writing from a list of names and addresses, then the attorney does not have meaningful involvement and is in violation of the Federal Trade Commission requirement.  As the Federal Trade Commission has acted most unkind to lawyers who are in the business of mass-mailing demand letters, it is imperative that any attorney entertaining the thought of sending a demand letter first have meaningful involvement in, and knowledge about, the particular matter at hand. Moreover, even if the above obstacles are avoided, many demand letters are not only ineffective, but are so incredibly poorly written that is hard to imagine anyone taking them seriously. In a course I have taught for the National Association of Credit Management (East Coast), I spent a good amount of time analyzing a few such letters. One example of these “bad” demand letters was a letter from a lawyer that says: "Please send us your payment now" and nothing else. Another letter, going in the opposite direction to maximize language and drama, indicated that the lawyer is "...desirous of disposing of this claim in an immediate fashion." I also have exhibited letters which are from law firms but either do not contain a signature or contain one that is either stamped or from an "administrator,” making it difficult to imagine that a debtor would be compelled in any way to respond. Despite the above warnings about demand letters, there are, of course, great stories and tales of demand letters that got results – such as the instance in which my office settled a case worth six figures simply on the basis of a demand letter. These things do happen; however, they are so infrequent that the odds of a successful outcome occurring are similar to the odds of winning the lottery, which makes sending demand letters end up as an exercise in futility In summary, writing demand letters is an ineffective way to prompt a debtor to action, and will usually be ignored. They can even, on occasions, get one sued or cause one's client to be sued. As such, when contrasted with the alternative, merely filing suit, sending a demand letter proves to be a waste of time and an exercise in futility.

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