Receivable/Accounts - Information for Credit and Collection Issues

Monday, April 16, 2012

Legal Final Demands

Last week, I met with an enterprising young law clerk, and we were speaking about the credit and collection business. In that discussion, the issue of legal final demands came up – he told me his law firm provides demand letters to a national client, and is charging in excess of $300 per letter! They also charged an additional substantial contingency rate based on collections.  This is a common service offered to creditors, but it is important to know the strengths and drawbacks in such a collection program.

Legal letters have been a part of the collection industry for many, many years. There are many law firms well known for their legal demand letters within the industry. One of the more prolific service providers in the past was lawyer Mark Silverthorn, who in recent years has changed his clientele, and now acts as a consumer advocate.

Law firms are not required to be licensed in Ontario to perform collection activities (although some other provinces do require registration under their specific collection agency legislation), and I have no issue with these law firms participating in our industry, but I am constantly in amazement that there is such a fee charged (and paid!) for a letter like this. While an amount in excess of $300 is one of the higher amounts I have heard of, fees of $75 to $150 per letter are far more common, and creditors should understand that they are paying an excessive amount.

However, the letter on its own is insufficient as a collection tool – it requires a support structure to be truly effective.

The Power of the Legal Final Demand

A letter with the trade dress of a lawyer’s office will certainly create a sense of urgency, especially when matched with balances in excess of $2000 owed, where legal action, specifically a small claims court action, is viable.

However, there are a few caveats when using such a letter.

• Most lawyers will endorse their name or their firm’s name to a letter, but will direct the generation of such letters, or the inbound calls from these letters, to a junior clerk or paralegal. It is crucial that the letter is supported by knowledgeable staff, when agitated debtors call the letter imprinted on the letter.

• Many letters and their presentation or layout undermine their authority or urgency by lacking a signature, contact name, contact number, or include odd elements such as an unprofessional bar code or reference number. Clients purchasing a legal final demand letter service should certainly review the content of letters being sent out in representation of their company, and compare them to what other legal firms or collection agencies may provide.

• Some letters can take the form of a draft statement of claim – this is definitely something creditors wish to be aware of, and avoid. Until recently, the use of a draft statement of claim, specifically a prepared but unfiled claim being sent to a debtor to give them the impression a legal claim was forthcoming, was prohibited under the Debt Collectors Act. This Act was repealed on March 30th, 2011, but the Ontario Registrar for the Collection Agencies Act has on more than one occasion reprimanded agencies from having retained lawyers sending these out, this tactic draws a great deal of media attention, and more than one law firm has been investigated by the Upper Canada Law Society for issuing these documents.

• Many letters contain wording overstep the bounds allowed by the client or are in violation of the Collection Agencies Act. In some cases, the law firm’s wording on the letter can cause a frustration of claim, preventing actual legal action at a later point in time.

What Does The Legal Letter Achieve?

Creating a powerful and professional legal final demand with the right software and printing equipment is easily done, and can merge in consumer information, and even calculations of interest, payment deadlines, and other specific information.Ideally, the letter indicates to the consumer (or consumer company) that a lawyer’s services are available to address an unresolved claim, if necessary. Ideally, the letter should result in at least a 10%-20% liquidation of receivables, before any telephone contact is commenced. This can be a very efficient method of collections.

Ideally, a proper telephone work plan that follows a legal final demand will supplement and support such a letter being sent out, and create a sense of urgency and consequence for the consumer. Together with the letter, a strong liquidation rate can be achieved.

What If They Don’t Pay?

It is crucial that the creditor know what is being sent out on their behalf, and that these letters are not hollow threats. If a consumer does owe in excess of $2,000, payment arrangements are not achieved, and they are discovered to be gainfully employed, legal action should be considered, and undertaken.This is where a third party collection agency working in conjunction with a law firm can best achieve results – most agencies maintain excellent call support software and collection staff to schedule follow up calls and investigation on files if the legal final demand is not successful. As well, the collection agency can affect the consumer’s credit rating with a registered item if legal action is not currently viable.

If the consumer is not employed, or does not have assets that can be attached to a judgment, the wording of the legal letter should allow for the creditor’s current position to not be compromised, and the file should be watched carefully for future employment, regular contact should be made with the consumer, and the sense of urgency should be maintained.


If you have questions regarding legal final demands, or you are currently employing these letters, feel free to contact myself at Kingston Data and Credit. Our office has experience with legal final demands, and produces them in conjunction with Rabideau Law. We have found that a tailored collection program in support of a legal final demand letter can produce high liquidation rates, and present a strong image on the creditor’s behalf. For our rates and program information, feel free to contact ourselves.

Blair Wettlaufer
Kingston Data and Credit
Cambridge, Ontario


  1. As you are aware Brian Pitkin has recently resigned his post due to his (turn a blind eye) to the current practice of collection agencies using this legal demand letter. This is prohibited by law in all provinces. No discussion here. The only time this is applicable is when the creditor is knowingly proceeding with legal remedy.

  2. Good afternoon!

    I am aware that Brian Pitkin did retire, although I do not believe it was due to legal demand letters.

    It's important to draw a line between legal demand letters (a letter on a lawyer's letterhead demanding payment), and a draft statement of claim (a prepared but unfiled legal document). The former is perfectly acceptable, the second, while technically legal with the withdrawl of the Debt Collectors Act, is not ethical.

    Finally, I agree with you -- a legal final demand should only be used when legal proceedings are authorized.

  3. I have for a few years used a law firm who sends legal demands (not claims)on our company's behalf. There is a seasoned, professional collector that takes over if the demand fails to produce results. I have used collection agencies for many years, and never have I had results with an agency to the degree I have with this law firm. I am through with agencies and believe the perception of "legal" engagement produces far better results than your average collection agency. The firm does not charge for the demand, and if it results in payment within 15 days of delivery, there's no charge at all. A contingent rate of 30% applies to collected amounts after the initial "demand" period. I'm a fan of the "legal demand" approach to collection. The proof is all that previous bad debt that turns into cash in the bank.

    1. It sounds like you are addressing the very concern I have with final demands -- having a support system around the letter, which is excellent.

      Of course, as I run an Accounts Receivable Management firm that falls under the collection agency umbrella to a degree, I'd certainly say you shouldn't write off the entire industry ... there are many tools that a non-legal firm has, and can run more efficiently than a law firm.

      Your free final demands is an excellent arrangement (we have a similar program), but if your balances are worthy of legal action, 30% is far too high. With high balances and high liquidation, you should be looking at 25% or even 20% on consumer debt, and lower on commercial accounts.

  4. I agree that it's extremely important to have inbound calls generated from law firm letters directed to a well trained and educated support staff.

    I find myself directing consumers to the Ministry of Consumer Services website to file complaints against collectors who are unaware of the laws that govern them all too often.

  5. Could you use the defense of statute of limitations in court, even if sued by a law firm for any debt that is over 2 years, and no legal proceedings have commenced to be registered in court before the 2 year period.

    1. Absolutely. Remembering that there may be exceptions to the limitation period for wage assignments, student loans, or acknowledgements of debt after the incurred date.