How to Respond to a Letter of Demand
Quick answer: a letter of demand is not a court order — you're not legally forced to pay just because you received one. But it's also not something to ignore. You have four real options: admit and pay, dispute it in writing, ask for more information, or negotiate a different amount or a payment plan. Ignoring it is the one choice that reliably makes your situation worse, because it clears the way for the sender to go straight to a tribunal or court claim. This is general information, not legal advice — for a large or complex claim, get advice specific to your situation.
If you're the one who needs to send a letter of demand, see our guide on writing a letter of demand that gets results. This guide is the other side of that conversation.
First, Read It Properly Before Reacting
Before deciding how to respond, check exactly what's being claimed:
- What amount is being demanded, and how was it calculated? Sometimes a demand includes interest, fees, or amounts you genuinely don't owe.
- What's the deadline? Most letters of demand give 7, 10, or 14 days — and that clock starts from when you received it, not when it was written.
- Who sent it, and are they entitled to? A letter from the actual creditor is different from one sent by a debt collection agency acting on their behalf — check the agency is legitimately engaged, not a scam.
- What do they say will happen if you don't respond? Usually this is a tribunal or court claim — but the letter itself has no power to do anything to you on its own.
Your Four Real Options
1. Admit the debt and pay (in full, or by instalments)
If the claim is accurate, paying resolves it quickly and avoids the risk of a tribunal claim adding further costs on top. If you can't pay the full amount at once, you don't have to just say so and wait — propose a specific instalment plan in writing instead.
Working out an instalment plan you can actually stick to? Try our free repayment calculator to see what a realistic monthly amount looks like before you propose one.
2. Dispute it — in writing, with reasons
If you genuinely don't owe some or all of the amount, say so clearly and explain why: the debt was already paid, the amount is wrong, the goods or services weren't provided as agreed, or too much time has passed (Australia's limitation period for most civil debts is 6 years, except the Northern Territory's 3 years). A dispute that just says "I don't owe this" with no explanation is far weaker than one that points to specific facts or evidence.
3. Ask for more information first
You're entitled to ask for supporting documents — an invoice, a signed agreement, transaction records — before admitting or denying anything. This isn't stalling; it's reasonable, and a legitimate creditor should be able to provide it. Genuine claims almost always come with paperwork behind them.
4. Negotiate — a lower amount, a payment plan, or more time
Proposing a counteroffer signals you're taking it seriously and want to resolve it without a tribunal claim, which most senders would also prefer to avoid (a tribunal claim costs them time and a filing fee too). Common counteroffers: paying a reduced lump sum to settle in full, or paying the full amount over an agreed number of instalments.
Whatever you agree to, put it in writing and get it signed. A verbal "yes, that sounds fair" over the phone is exactly the kind of thing that gets disputed later if a payment is missed. A short written agreement — even a simple payment-plan letter both sides sign — is what actually protects you if there's a disagreement about what was agreed down the track.
What Happens If You Ignore It
Nothing happens immediately — but ignoring a letter of demand removes your ability to negotiate before things escalate. The realistic next steps for the sender are lodging a claim with your state's small claims tribunal (for smaller amounts) or a court claim (for larger ones). If that happens and you don't respond to the tribunal or court process either, a default judgment can be entered against you without your side ever being heard — which is a materially worse position than responding to the original letter would have been.
When to Get Actual Legal Advice
- The amount claimed is large relative to what you can afford to lose if it goes against you
- You genuinely dispute owing anything, and the sender has already indicated they'll escalate
- The letter comes from a solicitor rather than the creditor directly — a sign the other side may already be prepared to escalate
- You're unsure whether you're within your state's limitation period to still be liable at all
Free or low-cost help exists in every state — your state's Legal Aid service and community legal centres both handle exactly this kind of question and can review a specific letter for you.
Sources: Legal Aid NSW — Responding to a Letter of Demand, business.gov.au — Letters of Demand.
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Create an Agreement →Frequently Asked Questions
Do I have to pay just because I received a letter of demand?
No. A letter of demand is a request, not a court order — you're not legally compelled to pay until (and unless) a tribunal or court actually orders you to. But ignoring a legitimate claim doesn't make it go away; it just removes your chance to resolve it before it escalates.
How long do I have to respond to a letter of demand?
Most letters set a deadline of 7, 10, or 14 days from when you received it — not from the date printed on the letter. If you need more time, ask for an extension in writing rather than staying silent.
What if I think the amount is wrong?
Respond in writing and explain specifically why — the wrong amount, an already-paid debt, or a dispute over what was actually owed. Ask for supporting documentation if none was provided. A specific, evidence-based dispute is taken far more seriously than a bare denial.
Can I negotiate instead of paying the full amount?
Yes — proposing a reduced lump sum or an instalment plan is a normal, common response, and most senders would rather agree to a realistic plan than pursue a tribunal claim. Get whatever you agree to in writing and signed by both sides.
What happens if I do nothing?
The sender's realistic next step is lodging a claim with a tribunal or court. If that happens and you also don't respond to that process, a default judgment can be entered against you without your side being heard — a worse outcome than engaging with the original letter.