A demand letter is exactly what it sounds like - a letter that makes a demand of its recipient. This demand will most often come in the form of financial restitution for some perceived wrong, but it can hypothetically involve more specific demands for instances like the threat of a restraining order.

In practical terms, a demand letter is often used as a means to stymie off an actual lawsuit. Lawyers will often send these letters out in the period preceding the actual filing of a lawsuit. By making a legally non-binding request, they can set terms and hopefully prevent the need for a lawsuit with the mere risk of a lawsuit.

The most common reason for filing a demand letter is to resolve an outstanding debt. Whether you’re looking at restitution for some negligent or malicious act or you’re looking for the fulfillment or a written or verbal contract. A demand letter that serves as a reminder of debt exists as a reminder of how costly a civil court case can be. In many instances, an unfulfilled demand letter for a debt reminder could be a strong justification for shifting debt to collections.

A demand letter doesn’t always have to come with the implication of a civil suit. In an instance where both parties agree that some level of injury has been done, a demand letter can simply help set the terms for what the negotiation will look like. 

In the case of an injury that will be covered by insurance, a demand letter effectively serves as an itemized list of prospective claims that the insurance company needs to pay for. This type of demand letter will often be a little more detailed. It will include a summary of the incident, an inventory of injuries and other damages, and a total claim for compensation. Demand letters are both a positive means for tracking your negotiation and a means to clearly establish your terms.

If you haven’t received goods or services that have been promised but not paid for, a demand letter can incentivize the provider to finish the work. This is a common first step when dealing with a delinquent contractor, and it can be a very effective method for getting work done without having to take things further with the involvement of a trial lawyer.

In many instances, a demand letter may be used as a threat. Demand letters used in this way can be a particularly effective means of intimidation if the financial leverage of the party filing the letter dramatically outstrips that of the person receiving the letter. Some law firms spend a majority of their time sending out demand letters without many of them even seeing the inside of a courtroom. 

If you have a decent understanding of the law, you may already know that a majority of lawsuits are settled out of court - with some studies suggesting that as many as 95% of lawsuits never actually make it into the court. A demand letter can be an effective means of not just avoiding the courts but also the mediation room, and that means that the line between acceptable outreach and extortion is sometimes a blurred one.

Whatever your reason for filing a demand letter, proceeding with caution is important. A well-written demand letter will be seen as a convincing sign of good faith to a judge, but a demand letter that comes across as bullying or demands exorbitant sums of money will only hurt your case.