Demand Letters in Construction

A payment demand letter can be an effective tool to help contractors & suppliers get paid.

What is a payment demand letter?

In construction, a payment demand letter is a notice to your hiring party that payment is overdue. It is also commonly known as a Dunning letter.

Read more: What is a Construction Demand Letter?

How to write a payment demand letter

Demand letters should look as professional as possible, which means avoiding grammar or spelling mistakes. The document should include your business’ letterhead, and you should sign it.

Your demand letter should contain a short and concise account of the payment dispute.

Items to include in a demand letter:

  • Name(s) of the property owner and/or general contractor
  • Brief description of the work you’ve completed
  • Description of the property
  • Amount due
  • Action(s) you will take if you don’t receive payment

After drafting the letter, document it properly by keeping a copy for your own records. You can attach it to the customer file, or create a new file to deal with outstanding payment. For evidence of delivery, it’s a good idea to send a demand letter by certified mail with return receipt requested.

Types of demand letters in construction – with templates

Notice of Intent

A Notice of Intent is a type of demand letter that can speed up payment and protect your lien or bond claim rights. In some states, sending a Notice of Intent is required before you file a mechanics lien or make a bond claim.

It’s also common for contractors to combine a payment demand letter and a notice of intent to lien. This is typically done simply by including language in your demand letter stating that you plan to file a mechanics lien if you aren’t paid. Generally, you should also reference the state law that gives you the right to file a lien.

Prompt payment demand

Prompt payment requirements are a collection of federal and state laws that set a deadline for payment to contractors and subs. These laws ensure that payment is made in a timely fashion. If a contractor isn’t paid within a certain period of time, prompt payment laws entitle the late-paid contractor to penalties, which may include interest fees and attorney costs.

Final notice before IRS Reporting

You can also threaten to report the uncollected debt to the IRS. When actually report it, the IRS treats it as “Debt Cancellation Income” for the party who failed to pay. They are then required to pay taxes on the “income.”

 

Payment Demand Letter Frequently Asked Questions

Answers to common contractor questions about payment demand letters, how they work in construction, and how to use them effectively to get paid.

What is a payment demand letter?

A payment demand letter is a notice that tells your hiring party that they owe you money for your work, and what you will do if they don't pay. For a complete guide to payment demand letters, see How to Write a Construction Demand Letter for Payment.

Why should I send a payment demand letter?

A demand letter can be a very effective tool to help you get paid: 1. It escalates the situation 2. It is much better than in-person or telephone requests because you’ll have evidence of the demand 3. You can start the clock related to your payment rights See Should I Send A Demand Letter?

Will sending a demand letter just make the GC or owner angry?

Ultimately, the recipient's response to a demand letter will depend largely on a) the tone of your letter, and b) the recipient's interest in paying you. A payment demand letter doesn't need to be overly aggressive. It should be polite and straightforward, providing a logical argument spelling out why they should pay you.

Perhaps a better question to ask yourself is: Are you taking fast payment seriously enough? When a project owner or GC makes payments on time, they are sending a message that they respect your time and work on the project. Late payments actually cost you money.

Learn how much slow or late payments actually cost you.

When should I send a demand letter?

A demand letter is typically sent after payment is past due, but before filing a mechanics lien or other claim. Exactly when you send a demand letter depends on your collections strategy, and may be a bit different with each customer. However, the more you can standardize your collections process, the easier it will be for you to manage slow or late payments.

Learn how a construction demand letter fits into an effective collections policy.

How should I deliver a demand letter?

There are no specific requirements for delivering a payment demand letter. However, sending a demand letter via certified mail, return receipt requested ensures that you have a record of the delivery. This can serve as evidence if you need to defend your claim.

See Construction Notice Delivery Methods: Certified Method vs Return Receipt Requested.

Do I need an attorney to send a demand letter?

While you can work with a construction lawyer to send a demand letter, it’s not usually necessary. Sending a demand letter through a lawyer may add more weight to your demands, but an effective, well-written demand letter will generally carry plenty of weight on its own.

You can easily draft and send demand letters on your own. Learn how to write a demand letter that gets you paid. For more, see What does a construction attorney do, and when do I need one?