A practical legal article in Philippine context

1) What a demand letter is (and why it matters)

A demand letter for unpaid debt is a written notice from a creditor (or the creditor’s lawyer/agent) to a debtor requiring payment of an obligation within a stated period, typically with a warning that legal action may follow if the debtor fails to comply.

In Philippine practice, a demand letter serves three core functions:

Proof of a clear, serious request for payment.
Trigger for legal consequences of “delay” (mora). In many obligations, the debtor is not considered in legal delay until there is a proper demand, which can affect the creditor’s right to claim interest, damages, and attorney’s fees (subject to law and proof).
Foundation for escalation (barangay conciliation where applicable, small claims, civil collection, or other remedies), and sometimes a prerequisite to show good faith and to support later claims.

Demand letters are common in: loans (personal or business), unpaid invoices, credit lines, bounced checks-related collections (handled carefully), rent arrears, services rendered, salary advances, and other contractual obligations.

2) Legal framework in the Philippines

a) Civil obligations and contracts

Most unpaid-debt situations are governed by the Civil Code provisions on obligations and contracts and by the parties’ agreement (loan contract, promissory note, purchase order, invoice, service agreement, lease, etc.). The general principles:

Contracts have the force of law between the parties. If the parties validly agreed on payment terms, those terms generally govern.
When the debtor fails to pay on time, the creditor may demand performance, rescission (in certain reciprocal obligations), and/or damages—depending on the nature of the obligation and what the contract allows.

b) “Demand” and debtor’s delay (mora)

A key concept in Philippine debt collection is mora (delay). In many cases, a demand (judicial or extrajudicial) is necessary to put the debtor in delay. Once in delay, the debtor may become liable for:

Interest (legal or stipulated, if valid),
Damages (actual, moral, exemplary in limited circumstances, and temperate/liquidated if applicable), and
Costs/attorney’s fees when allowed by law or contract and properly proved.

Not every case requires demand to establish delay—some obligations become due by their nature or by express stipulation (e.g., “no demand necessary” clauses, obligations with a determinate due date and specific circumstances). Still, as a practical and evidentiary matter, sending a demand letter is strongly advisable.

c) Interest rules (practical guide)

Interest in Philippine debt cases is frequently disputed. A workable approach:

Stipulated interest must be in writing to be enforceable as interest (as distinct from penalties/liquidated damages).
Penalty charges/liquidated damages may be enforceable if stipulated and not unconscionable, but courts can reduce unconscionable amounts.
If there is no valid stipulated interest, courts may apply legal interest depending on the nature of the obligation and prevailing jurisprudential rules at the time of judgment and execution. Because interest rules have evolved through cases over time, the demand letter should be careful and conservative: claim what is supported by contract and law, and present computations transparently.

d) Attorney’s fees

Even if you hired a lawyer, attorney’s fees are not automatically recoverable from the debtor. They must be:

Stipulated in the contract, or
Allowed by law and justified by circumstances, and
Proved and found reasonable. Overreaching attorney’s fee demands can backfire by appearing oppressive.

3) When a demand letter is especially important

A demand letter is particularly useful when:

The due date is disputed or payment terms are unclear.
Partial payments have been made and you need to fix the remaining balance and reconcile accounts.
You anticipate small claims and want clean documentation of the amount demanded.
You expect the debtor to raise defenses (defective performance, set-off, fraud, lack of authority, etc.).
You may need to show good faith and attempt at amicable settlement before litigation.

4) What a Philippine demand letter should contain

A good demand letter is clear, factual, and provable. It typically includes:

a) Parties and relationship

Full name of creditor and debtor (and business names, if any)
Addresses
Nature of relationship: loan, sale, services, lease, etc.
Authority of signatory (owner, authorized representative, counsel)

b) Statement of facts

Date and nature of the transaction
Amount borrowed/price/services billed
Payment terms and due date(s)
Payments made, if any, and application of payments
Outstanding balance as of a specific date

Attach or list supporting documents: promissory note, acknowledgment receipt, invoices, delivery receipts, contract, SOA, bank transfer proofs, chat/email admissions, etc.

c) Clear demand and deadline

Exact amount demanded
Where and how to pay (bank details, office address)
A reasonable period to comply (often 5–15 days depending on context)
Request for written response if disputing the claim

d) Interest/penalties (carefully drafted)

Cite contractual basis for interest/penalties, if any
Provide computation, or state that updated computation will be provided upon request
Avoid threatening illegal or excessive charges

e) Consequences of non-payment

Statement that failure to pay will compel the creditor to pursue remedies available under law
Mention possible filing of civil action (or small claims if applicable)
If barangay conciliation is required by the circumstances, indicate intent to pursue that process as needed

Keep consequences professional and non-harassing. Avoid any language that could be construed as intimidation.

f) Reservation of rights

Reserve the creditor’s right to pursue further legal remedies
Clarify that acceptance of partial payment does not waive rights unless expressly agreed

g) Signature and proof

Signed by creditor/authorized representative or counsel
Date and place of signing
Provide contact details for settlement communications

5) How to serve the demand letter (Philippine best practices)

The value of a demand letter depends heavily on proof of sending and receipt.

Common methods:

Personal service with acknowledgment
- Have the debtor sign “Received” with date/time on a duplicate copy.
Registered mail with return card
- Keep registry receipt and returned registry card (or proof of delivery).
Courier with tracking and proof of delivery
Email (supplemental)
- Useful if the debtor normally transacts by email; keep headers and delivery logs.
Messaging apps (supplemental)
- Screenshots alone can be challenged; preserve chat logs and context.

Best practice is to use at least one method that yields formal delivery proof (personal acknowledgment, registered mail, or courier POD), and optionally send copies via email/chat for speed.

6) Barangay conciliation (Katarungang Pambarangay) and its impact

Many disputes in the Philippines between individuals who reside in the same city/municipality and are within the barangay justice system’s coverage require barangay conciliation before filing in court.

Practical implications:

If your case is covered, filing directly in court without undergoing barangay proceedings can lead to dismissal or suspension for failure to comply with the required process.
A demand letter remains useful even when barangay conciliation is needed, because it frames the claim and can encourage settlement before or during conciliation.

There are exceptions (e.g., where parties reside in different cities/municipalities, urgent legal actions, certain cases excluded by rules). Evaluating coverage is fact-specific.

7) Choosing the right legal remedy after the demand

After the deadline lapses, the creditor typically considers:

a) Small Claims (for money claims within the allowable amount)

Small claims is designed for simple collection of sums of money without lawyers appearing for parties in hearings (with limited exceptions). It is faster and cheaper than ordinary civil actions. Typical eligible claims include loans, services, sale of goods, damage claims that can be computed, and similar money obligations, subject to procedural requirements.

Even when lawyers cannot appear at the hearing as counsel, a lawyer may still help prepare the documents. Demand letters and proof of service help substantiate the claim.

b) Ordinary civil action for collection of sum of money

Used when the claim is complex, exceeds small claims limits, involves substantial issues (e.g., rescission, damages requiring trial), or requires provisional remedies.

c) Provisional remedies (in appropriate cases)

Examples include preliminary attachment (to secure assets when grounds exist), but these require strict legal grounds and evidence and are not automatic.

d) Settlement instruments

If the debtor offers payment terms, document it properly:

Acknowledgment of debt with a payment schedule
Promissory note
Dation in payment (property in satisfaction of debt)
Compromise agreement Include default clauses, venue, and consequences.

8) Common defenses debtors raise—and how a demand letter can preempt them

A demand letter can anticipate and neutralize typical defenses:

“I already paid.”
- Attach ledger and request proof of alleged payment; specify how payments were credited.
“The amount is wrong.”
- Provide itemization: principal, interest, penalties, credits.
“The goods/services were defective.”
- Attach acceptance/delivery proofs; address complaints history.
“There was no agreement on interest.”
- Avoid claiming interest unless contractually supported; separate principal from any charges.
“You agreed to extend the deadline.”
- Clarify there is no valid novation/extension unless documented; cite communications if any.
“Prescription has set in.”
- Be mindful of prescriptive periods; if close, escalate promptly through proper channels.

9) Drafting pitfalls and legal risks in debt demand letters

a) Harassment and unlawful collection practices

Even outside specialized statutes, aggressive collection conduct can create civil and criminal exposure. Avoid:

Threats of violence or public shaming
Misrepresentation of legal authority (e.g., “warrant will be issued” in a civil debt)
Contacting employers/neighbors to embarrass the debtor
Excessive messaging or calls that could be construed as harassment

b) Criminal threats tied to purely civil debt

In the Philippines, non-payment of debt is generally not a crime by itself. Criminal exposure may arise when there is a separate criminal act (e.g., certain check-related offenses, estafa under specific conditions). A demand letter should not casually threaten criminal prosecution unless facts and law clearly support it and the purpose is legitimate, not coercive.

c) Defamation and data privacy

Naming the debtor publicly, posting in social media, or disclosing personal details to third parties can risk defamation and data privacy issues. A demand letter should be privately directed to the debtor and relevant authorized persons only.

d) Unconscionable interest/penalty

Overstated interest and penalties can be reduced by courts and can undermine credibility. Keep charges within defensible bounds, anchored on written agreement and reasonable rates.

e) Poor documentation

A demand letter cannot replace missing proof. If your documentation is thin, the letter should invite clarification and propose reconciliation of accounts while still asserting the claim.

10) Evidence checklist for a strong collection case

Attach or prepare:

Contract / promissory note / acknowledgment receipt
Proof of release of funds or delivery of goods/services
Invoices, SOA, ledgers, purchase orders, DRs
Proof of partial payments and their application
Demand letter and proof of service
Relevant communications (emails/chats acknowledging the debt)
IDs or corporate documents showing authority to collect (if acting for a company)

11) Practical structure of a Philippine demand letter

A standard structure:

Header (date, debtor name/address)
Subject: Demand to Pay / Final Demand
Background (transaction details)
Amount due (itemized)
Demand and deadline
Payment instructions
Consequences (lawful, professional)
Reservation of rights
Signature and attachments list

Language may be English or Filipino, or bilingual, as long as clear.

12) Special scenarios

a) Bounced checks

If the debt involves a dishonored check, collection and notices must be handled carefully because check-related offenses have specific notice and timing considerations. A demand letter in this context often functions both as a payment demand and as written notice of dishonor, but the exact approach should be aligned with the governing rules and evidence requirements.

b) Employer-employee debts (salary advances, loans)

Employers should be cautious about deductions and set-offs; documentary consent and labor standards considerations may apply. Demand letters should avoid threats affecting employment status unless legally grounded.

c) Online lending/consumer debts

Collection should be especially careful about privacy, harassment, and documentation. Keep communications professional and directed only to the debtor.

d) Corporate debtors

Confirm the proper recipient: company address, attention to authorized officers, and check contractual notice provisions.

13) Tone and strategy: getting paid without litigation

Effective demand letters are persuasive because they are:

Specific (exact numbers and dates)
Verifiable (document-backed)
Reasonable (fair deadline and defensible charges)
Firm but non-hostile
Settlement-ready (clear payment channels, willingness to accept structured payment without waiving rights unless documented)

A letter that reads like a threat often triggers resistance; a letter that reads like a court pleading often becomes too technical. The ideal is a businesslike notice that can later stand up in proceedings.

14) Sample template (Philippine context)

This is a general template and must be tailored to your facts and documents.

DEMAND LETTER Date: __________

[Debtor Name] Address: __________

Subject: Demand to Pay Outstanding Obligation

Sir/Madam:

This is to formally demand payment of your outstanding obligation arising from [loan/sale/services/lease] entered into on [date]. Under our agreement, you undertook to pay [amount] on or before [due date].

As of [cut-off date], despite prior reminders, you have failed to fully settle the obligation. The amount due is as follows:

Principal / Unpaid Balance: PHP __________
Less: Payments/Credits (if any): PHP __________
Total Amount Due: PHP __________

If applicable per written agreement:

Interest/Penalty (basis: [contract clause/document]): PHP __________
Total Amount Due as of [date]: PHP __________

Accordingly, you are required to pay the Total Amount Due within [number] days from receipt of this letter, or on/before [exact date], through any of the following modes: [bank details/payment options].

Should you fail to comply within the stated period, we shall be constrained to pursue appropriate remedies under the law, including the filing of the proper action to enforce your obligation, without further notice. This demand is made without prejudice to all other rights and remedies available.

Very truly yours,

Name / Position / Company (if any) Contact details: __________

Attachments: [list documents]

15) Bottom line

In Philippine debt collection, a well-written demand letter is not merely a formality—it is a strategic document that clarifies the claim, strengthens evidence, supports the running of legal consequences of delay in many cases, and increases the chance of settlement while positioning the creditor for barangay conciliation or court action when needed.