Letter of Demand for Unpaid Invoices in Singapore: What SMEs Need to Know

For many small and medium-sized enterprises (SMEs) in Singapore, maintaining healthy cash flow is a constant challenge. Late or outstanding invoices can disrupt operations, delay payroll, and limit growth opportunities. While most payment issues can be resolved through reminders or negotiation, there are times when formal action is necessary. This is where a Letter of Demand (LOD) becomes a critical tool.

If you’ve been wondering what to do about unpaid invoices or how a small business can protect itself from chronic late payers, this guide explains everything SMEs need to know about using LODs effectively.

What is a Letter of Demand (LOD)?

A Letter of Demand is a formal written request sent to a debtor, demanding payment of an unpaid invoice or other outstanding debt. It outlines the amount owed, the due date, and the consequences if payment is not made within a specified period.

In Singapore, an LOD is often the final step before legal proceedings, demonstrating that the creditor has made a serious attempt to resolve the issue amicably. While it can be drafted by lawyers, many SMEs now use standardized templates or professional services to prepare them quickly and affordably.

Read our complete guide on Letter of Demand in Singapore here!

Why SMEs Use Letter of Demand for Unpaid Invoices

For SMEs, unpaid invoices can be more than just an inconvenience. They can threaten business continuity. An LOD serves several important purposes:

• Creates urgency: It signals to the debtor that the matter is serious and cannot be ignored.

• Preserves professionalism: Keeps communication formal, avoiding personal or emotional disputes.

• Strengthens legal standing: Serves as documented evidence if the case proceeds to court.

• Cost-effective step: Less expensive than immediately engaging in litigation or hiring debt collectors.

In short, an LOD provides small businesses with a structured, legally recognized way to address unpaid invoices without escalating prematurely.

When to Issue a Letter of Demand

Not every late payment requires a formal letter. However, SMEs should consider issuing a demand letter when:

• An invoice remains outstanding 30 days or more past the due date despite reminders.

• The debtor ignores repeated calls or emails.

• There is no active dispute over the work or goods delivered.

• The amount involved is significant enough to impact your business.

Key Elements to Include in a Demand Letter

A well-drafted LOD must be clear, professional, and legally compliant. It should include:

1. Details of the parties involved: your company and the debtor’s full name or business entity.

2. Description of the debt: invoice number, amount, and due date.

3. Payment deadline: a specific timeframe, typically 7 to 14 days.

4. Warning of legal action: clear indication of possible next steps.

5. Payment instructions: bank account details or preferred method.

6. Contact details: for any disputes or clarifications.

Legal Weight of a Letter of Demand in Singapore

While an LOD itself is not a court order, it carries legal significance. Courts often view it as evidence that the creditor gave the debtor a fair chance to resolve the issue before filing a claim.

In some cases, simply receiving a demand letter prompts payment, as many debtors prefer to avoid the legal consequences that may follow.

Possible Outcomes After Sending a Letter of Demand

Once the debtor receives your LOD, a few scenarios may unfold:

• Full repayment: The debtor settles the outstanding invoice immediately.

• Partial repayment or negotiation: They may request an installment plan or reduced settlement.

• Dispute raised: The debtor challenges the validity of the invoice or claims.

• No response: The debtor ignores the letter, requiring further action.

Next Steps if the Debt Remains Unpaid

If the unpaid invoice is not settled within the stated deadline, SMEs in Singapore have several options:

• Small Claims Tribunals (SCT): Suitable for claims up to S$20,000 (or S$30,000 with a signed Memorandum of Consent).

• Civil litigation: For larger amounts or complex disputes.

• Engage a debt collection agency: Licensed collectors can negotiate repayment on your behalf.

• Statutory demand: For corporate debtors owing more than S$15,000, a statutory demand can precede winding-up proceedings.

Choosing the right step depends on the size of the debt, the business relationship, and legal costs.

Tips for SMEs to Prevent Late Payments

Issuing LODs should be a last resort. To reduce the risk of unpaid invoices, SMEs can adopt preventive measures:

• Clear contracts: Ensure terms of payment are clearly stated and agreed upon.

• Upfront deposits: Request partial payment before starting work.

• Automated reminders: Use invoicing software to follow up before and after due dates.

• Late payment penalties: Include clauses for interest charges or fees.

• Client vetting: Assess the creditworthiness of new customers before extending terms.

Taking these steps helps SMEs protect their cash flow and minimize the number of unpaid invoices.

Conclusion

For SMEs in Singapore, dealing with outstanding invoices can be stressful and time-consuming. A Letter of Demand is a powerful tool that provides a formal, legally recognized way to recover debts while keeping costs manageable. Knowing what to do about unpaid invoices and when to escalate the matter can save your small business from unnecessary financial strain.

Instead of drafting one manually or spending on legal fees, you can now generate an automated Letter of Demand in Singapore with Demand. Our platform makes the process simple, professional, and affordable, helping SMEs recover debts faster while focusing on growing their business. Get one today!