Supplier Outstanding Balance Demand Letters in the Philippines A Comprehensive Legal and Practical Guide

1 | Overview

A demand letter (often called a collection letter or final notice) is a written, extra-judicial notice sent by a supplier-creditor to a buyer-debtor who still owes money for goods or services already delivered. Its functions are to (1) place the debtor in legal default (mora), (2) interrupt prescription (running of the statute of limitations), (3) establish or reinforce entitlement to interest, damages, and attorney’s fees, and (4) open a paper trail that will stand up in court or in arbitration.

2 | Statutory & Jurisprudential Foundations

Pillar	Key Provisions & Doctrines	Practical Take-aways
Civil Code	• Art. 1169 – Demand is generally required to put a debtor in default. • Art. 1170-1174 – Liability for damages upon default, plus defenses (fortuitous events, etc.). • Art. 1155 – Extrajudicial demand interrupts prescription. • Arts. 1144–1145 – 10-year prescriptive period for written contracts; 6 years for oral or implied open-account sales.	A clear, dated demand letter re-starts the prescriptive clock and is a pre-requisite to collect interest and damages.
Interest Rules	• Civil Code Art. 1956 – Interest must be in writing to be demandable. • Central Bank Circ. 905 (1982) suspended the Usury Law ceilings, but courts may strike down unconscionable rates. • Nacar v. Gallery Frames, G.R. No. 189871 (2013) – Standard legal interest is 6% p.a. on monetary judgments, whether ex-contractu or ex-delicto.	State a contractual rate; if absent, claim 6 % and start it from date of demand or judicial filing, per Nacar.
Revised Corporation Code	Sec. 3 – A domestic corporation is deemed to receive notices delivered to its registered office.	Serve corporate buyers at their SEC-registered address to avoid service disputes.
Small Claims (A.M. 08-8-7-SC as amended)	Money claims up to ₱1,000,000 (since April 11 2022) may be filed without counsel after a prior demand.	If the amount fits, the demand letter is Exhibit “A” in small-claims court.
Barangay Justice System (R.A. 7160, ch. VII)	Mandatory conciliation for disputes ≤ ₱400,000 between natural persons in the same city/municipality (except when a party is a corporation).	For sole-proprietor suppliers, check if barangay mediation is a condition precedent.
B.P. 22 & Estafa (RPC Art. 315(2)(d))	Criminal liability may attach if the debtor issued bouncing checks with knowledge of insufficient funds or misrepresented ability to pay.	The demand letter is evidence of dishonor and notice required under B.P. 22.

3 | When Is a Demand Letter Legally Required?

Scenario	Is prior demand indispensable?
Obligation with a specified due date (“⁠Pay on July 1, 2025⁠”)	No. Debtor is automatically in default the day after maturity (Art. 1169, 2nd para.). Nonetheless, send one to interrupt prescription and for courtesy.
Obligation with no date (“⁠Pay when able⁠”, running account, consignment)*	Yes. Formal demand is required to determine when default begins.
Debtor voluntarily refused in writing or in court	No, default already exists.
Obligations arising from quasi-delicts or penalties	Varies; demand advisable to compute interest or penalties.

4 | Essential Elements of an Effective Demand Letter

Heading & Date – Use letterhead, state date clearly.
Addressee – Full legal name, position, and registered/known address.
Recital of Facts
- Contract/Purchase Order number(s)
- Delivery dates, official receipts, waybills, or invoices
- Running Statement of Account (SOA) showing principal, interest, past payments, offsets, credits
Legal Basis – Cite the Civil Code articles on default and interest, any specific clauses of the supply contract (e.g., payment terms, late-payment surcharge, retention), and tax laws if VAT or expanded withholding tax (EWT) affects net amounts.
Unequivocal Demand – A clear directive: “Please settle the total outstanding balance of ₱ ___ within ___ calendar days from receipt of this letter.”
Consequences of Non-payment
- Accrual of interest/penalty (specify rate and basis)
- Possible civil suit, small-claims filing, or arbitration
- Potential criminal prosecution (B.P. 22/estafa) if applicable
Payment Instructions – Bank details, cheque instructions, online channels, confirmation email/fax.
Deadline & Contact Person – Exact cut-off date/time and authorized representative for dispute resolution.
Authentication & Enclosures – Signature above printed name and title; attach SOA, invoices, proof of delivery (POD), copy of dishonored cheque, photos (if goods are perishable or disputed), etc.
Proof of Service Section – Space for recipient’s signature or reference to Registry Receipt/air-waybill number.

5 | Modes of Service & Proof

Method	Pros	Cons	Best Practice
Personal Service	Immediate acknowledgment; option to get signed Received copy.	Debtor may refuse to sign; travel costs.	Bring a witness; take geo-tagged photos.
Registered Mail w/ Return Card	Statutorily favored; return card shows date of receipt/refusal.	Postal delays; risk of “Moved Out” notation.	Keep registry receipt and tracking history print-out.
Private Courier	Faster; online tracking.	Courts may require affidavit of service.	Attach courier’s Proof of Delivery (POD).
E-mail	Instant; cost-free.	Authentication issues if address is contested.	Use address previously used in business & print “message sent” logs.

6 | Interest, Penalties & Liquidated Damages

Contractual Interest – Must be in writing (Art. 1956).
Absence of Stipulation – Creditor may claim legal interest; courts currently impose 6 % p.a. per Nacar.
Penalty/Service Charge – Enforceable if (a) reasonable, and (b) not contrary to morals, good customs, public order (Art. 1306).
Compounded vs. Simple – Compounding requires clear, explicit stipulation; otherwise, courts apply simple interest.
VAT & EWT – Late-payment interest is outside VAT base if imposed as damages, but check BIR rulings for specific industry practices.

7 | Prescription & How Demand Letters Stop the Clock

Basis of Action	Prescriptive Period	Effect of Demand
Written supply contract, signed invoices	10 years (Art. 1144[1])	Written extra-judicial demand interrupts the period and starts it anew.
Oral contract / implied open account	6 years (Art. 1145[2])	Same interruption rule.
Unenforced judgment	5 years to move for execution; after that, another 5 years to file an action on the judgment.	Demand letter does not interrupt—file a motion or action.

Tip: Insert a diary tickler to re-issue demand every few years if payment drags on, ensuring prescription never runs.

8 | After the Demand: Enforcement Pathways

Settlement / Restructuring – Negotiate extended terms, post-dated checks, or security (chattel mortgage, surety).
Barangay/Katarungang Pambarangay – If mandatory, file Punong Barangay written complaint within the same city/municipality.
Small-Claims Case (MTC) – Fill out Form 1-SC; attach demand letter. No lawyer’s fees recoverable, but filing is cheap and speedy (30-day period to decide).
Regular Collection Suit (MTC ≤ ₱2 M; RTC > ₱2 M) – Possible provisional remedies:
- Pre-judgment attachment (Rule 57) to secure debtor’s assets.
- Garnishment of bank accounts or receivables.
Arbitration or Mediation – When supply contract includes ADR clause; demand letter helps establish “cooling-off” chronology.
Criminal Route – B.P. 22 complaint or estafa affidavit if checks bounced or deceit proved. A prior written demand within 90 days of dishonor is mandatory under B.P. 22.

9 | Defenses Typically Raised by Debtors

Prescription – Countered by showing timely demand letters.
Defective Goods/Services – Ensure you have delivery receipts signed “Received in Good Order.”
Force Majeure / Pandemic Delays – Recourse to Art. 1262, but default requires impossibility, not mere difficulty.
Payment or Set-Off – Keep official receipts, bank confirmations.
Unconscionable Interest – Courts may reduce rate to 6 % or delete penalty clause.

10 | Drafting Tips & Best Practices for Suppliers

Send monthly Statements of Account to avoid “sleeping on rights.”
Use Sales Invoices (BIR-registered) and have them countersigned or stamped by buyer upon delivery.
Insert a Default & Collection Costs clause: “In case of delay, Buyer shall pay 3 % per month interest plus 25 % attorney’s fees.”
Require security (e.g., post-dated checks, surety bond, bank guarantee) for high-volume buyers.
Maintain a Litigation File: demand letters, registry receipts, SOA, delivery notes, emails, and chat logs (screenshots with timestamps).
Evaluate cost-benefit before suing: do asset checks, SEC/DTI/BCOR status, pending cases.

11 | Annotated Sample Demand Letter (Skeleton)

ABC Manufacturing, Inc. 123 Food Park, Laguna Technopark, Biñan City TIN : 000-123-456-00000 June 24, 2025

BY REGISTERED MAIL & EMAIL XYZ Grocers, Corp. 88 Market Ave., Pasig City

Re : OUTSTANDING BALANCE – SOA No. 2025-048 (₱ 2,356,400.00)

Dear Ms. Reyes:

Under Purchase Order No. PO-24-0915 dated September 15, 2024, ABC delivered assorted canned goods, duly received on October 1, 2024 (DR Nos. 1012-1017).

Despite partial payments totaling ₱ 1,200,000, your account remains ₱ 2,356,400 as of June 24, 2025 (see updated SOA, Annex “A”).

Pursuant to Article 1169 of the Civil Code, we hereby make formal demand upon XYZ Grocers, Corp. to remit the full outstanding balance plus 3 % monthly interest agreed under Clause 8 of the PO, within five (5) calendar days from receipt hereof, or not later than July 3, 2025.

Failure to do so will compel us to pursue all legal remedies, including:

Small-claims or collection suit with motion for issuance of a writ of attachment;

Criminal action under Batas Pambansa 22 should post-dated checks remain dishonored; and

Reporting the delinquency to trade credit bureaus.

Kindly deposit to BPI Account 1234-5678-00 and email the proof of transfer to collections@abc-mfg.ph.

We trust this matter will be resolved promptly.

Very truly yours,

(sgd.) Atty. Juan Dela Cruz Credit & Legal Affairs Manager

Encls.: Annex “A” Statement of Account; Copies of Invoices, Delivery Receipts Cc: CFO, XYZ Grocers (via email)

12 | Ethical and Commercial Considerations

Tone Matters – A firm yet professional demand preserves relationships if the buyer later recovers financially.
Data Privacy Compliance – Avoid disclosing debtor’s sensitive data to third parties (Data Privacy Act).
Good-Faith Resolution – Courts may deny attorney’s fees when the creditor acted oppressively.

13 | Key Philippine Cases for Reference

Case	Gist
Nacar v. Gallery Frames (2013)	Recalibrated legal interest to 6 % p.a. for judgment obligations, overruling ECE Realty.
Spouses Abella v. Spouses Napila (G.R. No. 150529, 2005)	6 % interest imposed where 24 % contractual rate seen as unconscionable.
Pison Harbor, Inc. v. Court of Appeals (G.R. No. 119294, 1999)	Written demand sufficient to interrupt prescription even if debtor denies liability.
G&G Trading Corp. v. Court of Appeals (G.R. No. 129631, 1999)	Delivery receipts signed “Received” are prima-facie proof of goods received for sale.
Garcia Enterprises v. Secretary of Finance (G.R. No. 102243, 1993)	VAT not imposed on simple interest or penalties treated as damages for late payment.

14 | Checklist for Suppliers (Print & Pin on the Wall)

✅ All invoices BIR-compliant and signed.
✅ Delivery receipts acknowledged with “Received in Good Order.”
✅ Contract/PO contains default, interest, and venue clauses.
✅ Collection schedule: Friendly reminder 7 days, 1st demand 30 days, Final demand 60 days.
✅ Registry receipts and return cards filed chronologically.
✅ SOA updated monthly; discrepancies escalated immediately.
✅ Debtor’s financials & SEC filings monitored for red flags.
✅ Set calendar alert 90 days before prescriptive periods lapse.
✅ Evaluate ADR vs. litigation cost every quarter.
✅ Keep communication professional—No threats, no slander.

15 | Conclusion

Under Philippine law, a well-crafted Supplier Outstanding Balance Demand Letter is far more than “just a letter”; it is a potent legal instrument. It crystalises default, preserves your claim from prescription, justifies interest and damages, and often triggers voluntary compliance—saving time and litigation costs. By anchoring the letter on the Civil Code, sound jurisprudence, and best commercial practices, Philippine suppliers can collect faster, negotiate smarter, and, when necessary, litigate from a position of strength.

This article is for informational purposes only and does not constitute legal advice. For specific concerns, consult a Philippine-licensed lawyer.