A formal demand letter is a letter an attorney sends on a client's behalf to a third party demanding payment or other action, states BusinessDictionary.com. A person may also send a demand letter before filing a lawsuit in small claims court, reports Nolo.
A demand letter includes a description of the owed amount or the required action, the reason why, the method for making payment or performing the action, and a time limit, explains BusinessDictionary.com. Demand letters may help avoid litigation by putting pressure on the other party to reach a settlement. Some courts may require a litigant send a demand letter before filing a lawsuit, but many do not, according to Nolo.
Demand letters also helps the litigant if the case does go to court, claims Nolo. The attorney, or the litigant if he is acting on his own, must send the letter certified mail with return receipt. He should make multiple copies of the letter, the certified mail receipt, and all return correspondence from the other party. The letter details the litigant's case for the judge, and the receipt provides evidence that the other party knew of the demand and had the opportunity to resolve it before the suit was filed.