How to Respond to a Demand Letter Without Making It Worse

Step one: read the letter against your records, not your memory

Before writing a word, pull the documents the letter refers to: the contract and every amendment, the invoices, the delivery or performance records, and the emails and texts around the dates in dispute. Compare each factual assertion in the letter to what the paper shows. Mark three columns: true, false, and unknown.

This step decides the whole response. A letter answered from memory tends to overstate what you can prove and understate what the other side can. Whether to respond at all is a separate decision, covered in whether to respond to a demand letter; this article assumes you have decided to answer.

Step two: lock down the evidence and check insurance

Preserve everything, including material that hurts you. Suspend any automatic deletion of email or chat for the people involved, and tell them in writing not to delete or edit anything related to the dispute. Texas courts can sanction a party that destroys relevant evidence once litigation is reasonably anticipated, and a demand letter is strong proof that it was. The mechanics are in what a litigation hold requires.

Then read your insurance policies, or have your broker do it. Many business policies treat a written demand as a claim and require notice within a fixed period. If coverage might exist, notice goes out before the response does, and the carrier may want a say in what the response says.

Step three: decide what the response is for

A response can aim at one of four outcomes, and the wording follows the aim:

• Close the matter. You owe nothing, the letter rests on a mistake, and you want to say so clearly once. The response is factual and final.
• Narrow the dispute. Part of the claim is valid. You tender or offer the undisputed part and explain, with documents, why the rest is contested. Under Texas Civil Practice and Remedies Code § 38.002, tendering the just amount within 30 days of presentment also cuts off the sender's right to attorney's fees on that amount. The approach when you owe something is covered in responding when the letter is partly right.
• Open a negotiation. You dispute liability but prefer a business resolution. The response states your position and proposes a conversation, a mediation or an exchange of documents.
• Buy time properly. You need to investigate. The response acknowledges the letter, says a substantive reply will follow by a specific date, and asks the sender to confirm that no action will be taken before then.

Step four: what the response should contain

Most effective responses fit on one or two pages. The structure:

1. Acknowledgment. The date you received the letter and what it demands, in one sentence. This prevents a later claim that you never got it.
2. Your position, demand by demand. If the letter makes three demands, answer three. "We dispute" or "we agree" with a one- or two-sentence reason each. Reference documents by date rather than quoting them at length.
3. Corrections of fact. Where the letter gets a date, amount or event wrong, say so and say what the record shows. Attach the document only if it is complete and you have reviewed all of it.
4. What you are prepared to do. Pay a specific amount, return specific property, meet on a specific date, or nothing further. Vague goodwill helps nobody.
5. Reservation of rights. A sentence stating that the response is not a complete statement of your defenses and that you reserve all rights and claims, including any claims against the sender.
6. Where to send further communication. One named person, one address.

Example

Suppose a commercial landlord's lawyer writes to a Dallas restaurant tenant demanding $62,000: $40,000 in unpaid rent, $14,000 in late fees and $8,000 for repairs. The tenant's records show the rent is correct but two payments were made and not credited, the late fee is calculated at a rate the lease does not contain, and the repair demand concerns a roof the lease assigns to the landlord. A strong response is three paragraphs: it confirms receipt, agrees the rent is owed less the two payments (with check numbers and dates), disputes the late fee by citing the lease section and its actual rate, and disputes the repair charge by citing the maintenance clause. It tenders the corrected rent balance and reserves all rights. The $62,000 dispute is now a dispute about perhaps $14,000, and the tenant has shown it reads leases carefully.

What to leave out

The mistakes that make a demand letter dispute worse are nearly always things the response said that it did not need to say.

• Narrative. The history of the relationship, who said what at lunch, why the other side is unreasonable. None of it moves the claim, and all of it is quotable.
• Admissions you have not checked. "We did miss the deadline, but" is an admission. If you are not certain, say the matter is under review.
• Threats. Counter-threats of lawsuits, bar complaints or publicity invite escalation and can themselves become evidence of bad faith. A reservation of rights says everything a threat says, calmly.
• Offers you cannot fund. An offer accepted is a contract. Do not propose a payment plan the business cannot keep.
• Legal argument. Citing statutes and cases in a first response rarely persuades the other lawyer and often reveals which defenses you are counting on.

Does "for settlement purposes only" protect what I write?

Partly, and less than most people assume. Texas Rule of Evidence 408 makes offers of compromise, and conduct or statements made during compromise negotiations, inadmissible to prove or disprove the validity or amount of a disputed claim. A court may still admit the same material for another purpose, such as showing bias or rebutting a claim of undue delay. Texas Civil Practice and Remedies Code § 154.073 goes further and makes communications in a formal alternative dispute resolution procedure, such as a mediation, confidential, but an exchange of letters between the parties is not an ADR procedure.

Two practical consequences. First, labeling a letter does not help if the letter is not actually part of a negotiation; a flat denial with no offer in it may fall outside the rule. Second, a pre-existing document does not become protected because you attached it to a settlement letter. Write every response as if a judge will read it, and use the label as a precaution rather than a license.

How and when to send it

Send the response the way the demand arrived, and add a second method that creates a delivery record: certified mail with return receipt, a courier with signature, or email with a read receipt to the address on the letterhead. Keep a copy of exactly what was sent, with attachments, in the preserved file.

On timing, the sender's deadline is a starting point rather than a rule. The 30-day window under § 38.002 is real; so is the 60-day period after a Deceptive Trade Practices Act notice under Texas Business and Commerce Code § 17.505. A deadline the sender invented is not. A short acknowledgment within the stated period, followed by a substantive response within a time you set, is a common and defensible pattern. Whether a stated deadline binds you is discussed in the article on demand letter deadlines.

When the response should come from a lawyer

A business owner can write a competent response to a straightforward invoice dispute. A lawyer should draft or review the response when the amount is material to the business, when the letter alleges fraud, fiduciary breach, trade secret misuse or a non-compete violation, when an injunction is threatened, or when the sender is a lawyer who has attached a draft petition. In those cases the response is the opening move of a case, and the wording chosen now will be read back in a deposition later. Tina Wysk drafts and reviews demand letter responses for businesses across Dallas-Fort Worth, often resolving the matter before a petition is filed.