The Collection Demand Letter is a Promissory Note companion document
legally advising the borrower of a late / default payment owed to the
lender within a specified period of time. When completing a Promissory
Note, an Installment Note also may accompany the original document to
detail the payment schedule (amounts and dates) associated with a loan
of money or exchange of personal property. This documentation will
prove helpful in the event the lender must prepare a Collection Demand
Letter for presentation or delivery to the borrower.
A Collection Demand Letter document will typically specify the following:
- Full, legal name of borrower
- Date of original loan transaction (from Promissory Note)
- Payment due date (established on Promissory Note and / or Installment Note)
- Past due payment amount (established on Promissory Note and / or Installment Note)
- Signature of lender
The simple version of the Collection Demand Letter will provide a written
form of notification using the above referenced information. However,
the Collection Demand Letter will simply state the borrower's payment
has not been received by the lender and is now due.
An expanded version of this letter will provide the lender a written form
of notification to the borrower of a late payment, as well as a demand
for payment in full within a specified period of time. Depending on the
specific language of the Collection Demand Letter, it may require of
the borrower to immediately pay all principal, interest and any fees
related to the original loan within the previously specified period of
time. Additionally, notification of penalties, accrued interest and any
applicable attorney's fees related to recovery also may be imposed.
The Collection Demand Letter may be used at any time during the loan period
should the borrower be in default (late payments). When preparing the
Collection Demand Letter, a copy for the lender and borrower should
also be prepared. Should the lender determine court action be necessary
to recover their loan amount and / or personal property, evidence of
collection demands (the Collection Demand Letter) will aid in proving a
negligent and unstable payment history by the borrower.
Of important note: Many suggest offering an appropriate amount of time for
the borrower to remit each monthly payment, i.e. a five-day grace
period immediately following the payment due date (determined during
the Promissory Note and / or Installment Note preparation). Following
this period, it may be appropriate to provide the borrower with the
simple Collection Demand Letter. In the event the borrower fails to
remit the late payment combined with any appropriate late fees, the
lender may then deliver an expanded version of the Collection Demand
Letter, and seek legal action to immediately collect the principal
balance along with any interest and applicable attorney’s fees related
to revocation.
