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Payment Letter: How and Why. Get what you’re owed

A payment letter is simply a letter that is sent in order to give the opposing party a chance to avoid a trial and/or to fulfill its obligations within a reasonable time limit. The payment letter has both legal and practical objectives. Here are practical tips on how to get what’s owed to you.

Why send a payment letter?

Sometimes, the law requires it:

A demand letter, in some cases called a “payment letter” or “lawyer letter”, must be sent very promptly in order not to lose the right to sue, particularly in cases of hidden defects or in proceedings against a municipality.

A demand letter must be sent so that interest can start to accumulate on an amount that is due. Depending on the amount at stake and court delays, this could be thousands of dollars.

Often this is the final reminder letter before taking legal action.

It improves the chances of settling out of court because:

  1. The payment letter shows that you are serious. It sends a clear message to the other party. If you don’t send one, the other party may think that you are not going to do anything to collect your debt. They may also think that you are simply giving up your claim as many people do in Canada. Therefore, this letter will make them understand how serious you are about a legal procedure.
  2. It represents a clear warning. Whether we like it or not, the payment letter, or demand letter, is a type of “threat”. It warns the other side that if they don’t respond to your request, there will be consequences. This may make the opposing party move. Moreover, in more than 85% of the cases, the parties decide to settle out of court.
  3. It clarifies perceptions. Every party can see the situation in a very different way. Maybe they aren’t aware of the same facts. To send in writing one’s own version of the facts and evidence related to a situation may indeed alter the opponent’s perception of his chances of winning at trial. Should the other party be less confident, your letter can offer you a more generous settlement agreement.

How to write a payment letter

1) Gather all the relevant information

The payment letter is a type of communication between you and the opposing party. The more you will have, the more convincing you will be. If you have any evidence to attach to the document, it could help you convince the other party to be reasonable.

2) Draft it

The law does not dictate expressly how to write a demand letter or payment letter. However, there are good practices that have been tried before the courts. You don’t have to hire a lawyer, you can write it by yourself or you can use online tools to help guide you through it. Here is what a demand letter must contain:

 In the header:

  • Date;
  • Contact details of the recipient;
  • The expression “payment letter “ or “demand letter” so that the recipient knows what to expect.

Practical tip:

  • Apply the mention “Without Prejudice” to protect the sender (yourself) in case of a potential litigation. Indeed, this expression is normally indicated in order to protect the sender with regard to the contents of the letter (for instance, in case the sender would have to change the amount owed).

 In the body of the text:

  • A summary of facts surrounding the problem;
  • A payment request or any other demand;
  • The reason why you have the right to make this request;
  • A time limit for the other party to carry out the request;
  • Names of the documents that you are attaching in the annex;
  • Consequences: what will happen if what is requested is not done:
    • For example: “If payment is not received within ten days of the date of this letter, I reserve the right to take legal action to recover the money without further notice to you.”
  • Remain concise, normally, a total of one page of explanations is sufficient;
  • The time limit to answer your request must be reasonable: the opposing side must be practically able to do what is requested;
  • Make sure to ask for the capital, interest and any fees that your contract and/or the law entitles you to obtain.

In the footer:

  • The sender’s contact information and signature;
  • The mention “please act accordingly”;
  • Your signature and your name under it.

3) Add the evidence you have in the document

Even if the law does not require this, adding some evidence in the annex could help you find a solution more quickly. These can restore misperceptions between the parties. Moreover, they can make a party reassess its chances of success if it were willing to proceed before a judge. More realistic expectations increase your chances of settling out of court.

4) Send your payment letter

The sender must make several copies of the demand letter and keep one for his file. There are many options for sending it. Here are 5 of them:

  • By bailiff: deciding to use a bailiff to deliver the payment letter, or a lawyer to prepare it, could prove to be much more expensive. However, this choice gives weight to your payment letter, as it is always stressful to have a bailiff knock on your door. It may be advisable to do so if the involved amounts are significant.
  • By registered mail: this method provides proof that the document has been sent and received. The sender must absolutely keep proof that the letter was delivered by Canada Post; without this evidence, your demand letter loses its significance. Normally, providing the signature of the recipient proves this evidence. (A judge may require this in court.)
  • Via an automated web application: online tools can help you draft the letter and can sometimes also deliver it for you. This makes the whole process easier and it prevents you from making mistakes. The better web apps will also take care of delivering the documents for you.
  • In person: if you choose this option, ask that the opposing party sign the document you provide him. This option is not ideal, however, as it is rare that the opposing party will wilfully sign your letter and cooperate.
  • By email: email is a tool that can easily be ignored by the opposing party. The weight and seriousness of this method of request diminishes your chances of an out of court settlement agreement.


  • It is important not to make declarations that could eventually be retained against you. We therefore advise you to stick to the facts.
  • You need to think about the kind of threat you want to communicate. Using a bailiff to “serve” the payment letter, or asking a lawyer to draft may have weight but may prove expensive. If what is at stake very important, this may be a good option.
  • Sending the payment letter via a site such as BidSettle.com gives your request the credibility without the extra cost.
  • Being polite may actually save you money: in many situations, emotions prevent conflict resolution. Staying neutral will therefore increase your chances of reaching a settlement.
  • Important: the demand letter does not stop the expiry of the limitation period. For example, if your jurisdiction allows you to sue another party within 2 years of when the event took place, sending a payment letter does not “freeze” this time limit. You should therefore send your payment letter as soon as possible to give yourself more time to prepare for any future legal action, should you wish to follow that path.