A demand letter arrives. It might come from a former employee, a disgruntled customer, a competitor, or a business partner. The tone is aggressive, the amounts are alarming, and there’s a deadline.

Before you panic, here’s a practical framework for responding.

1. Read it carefully, then read it again. Identify exactly what is being claimed, who is making the claim, what they’re asking for (money, action, or both), and the deadline given. Note whether a lawyer sent the letter or the individual themselves.

2. Do not ignore it. Ignoring a demand letter doesn’t make the problem disappear. It often escalates it. A failure to respond can also be used against you later if the matter proceeds to litigation or regulatory action.

3. Do not respond emotionally or immediately. A demand letter is a negotiating tool. It’s designed to put you on your back foot. Resist the urge to fire off a defensive response the same day. Take the time to assess the situation clearly.

4. Gather your documents. Pull together every relevant agreement, email exchange, invoice, and record related to the claim. Your response will be stronger if it’s grounded in specific facts and documented communications rather than recollection alone.

5. Assess the merits honestly. Not every demand letter is meritless, and not every one has merit. Consider: Is there a legitimate basis for the claim? Do you have contractual defences (limitation of liability, dispute resolution procedures, notice requirements)? Is the amount demanded proportionate to the actual issue?

6. Get legal input before you respond. Your written response to a demand letter can have legal consequences. Admissions, even casual ones, can be used against you. A lawyer can help you draft a response that protects your position, addresses the claim proportionately, and sets the right tone for resolution.

7. Consider your commercial objectives. Sometimes the best outcome is a negotiated resolution, even if you believe you’d prevail in court. Litigation is expensive, time-consuming, and distracting. A practical settlement that preserves the business relationship or limits exposure may be the better commercial decision.

The goal is to respond from a position of clarity and strength, not to escalate unnecessarily. Most business disputes settle. How you handle the first communication often sets the tone for everything that follows.

SIL Consult advises businesses on disputes and commercial risk. Get in touch if you’ve received a demand letter and need guidance on next steps.