Most disputes don’t start in a courtroom—they start in an email thread that gets tense, a vendor who stops responding, or a customer who suddenly “has issues” only after the invoice is due. At that early stage, a demand letter can do what litigation often can’t: force clarity. It frames the facts, defines the legal basis, and—most importantly—puts a number on the table that the other side can take seriously.
At Douglasfirm, we see the same pattern again and again: the outcome of a commercial dispute is often influenced by the first serious demand. Not because a demand letter is magic, but because the number you demand signals whether you understand your claim, can prove it, and are prepared to escalate. Demand too little and you cap your leverage. Demand too much and you risk sounding unserious—or triggering a faster, more expensive fight.
This guide focuses on contract-related (commercial) damages—how to calculate them, how to present them credibly, and how to choose a demand amount that’s strategically positioned for early resolution. We’ll also briefly explain how this differs from personal injury damages, because many people use the same “pain and suffering” language in a business dispute—and that can undermine credibility.
Start with the “why”: what are you demanding payment for?
In commercial demand letters, the claim usually falls into one (or more) of these categories:
- Unpaid invoices / accounts receivable
- Breach of contract (nonpayment, non-delivery, late delivery, defective performance)
- Service/vendor disputes (milestones, acceptance disputes)
- Project and construction-related claims (change orders, scope disputes, completion delays)
- Partnership and business divorce losses (often tied to operating agreements)
- Deposits, refunds, chargebacks, and failed transactions
The legal theory matters because it dictates what damages you can recover and what proof you’ll need. A strong demand letter usually states one primary theory (e.g., breach of contract) and one fallback (e.g., unjust enrichment), then ties the demand amount to documents.
The practical framework: Base Damages + Add-ons + Strategy
Think of your demand as:
Demand Amount = Base damages + Recoverable add-ons ± Strategy adjustment
You’re balancing two things:
- What you can prove and likely recover, and
- What will move the other side to resolve early.
Step 1: Calculate base damages (your anchor)
A) Unpaid invoices / straightforward nonpayment
Base damages are typically:
- Invoice totals
- Minus payments already made
- Plus approved change orders (where applicable)
Evidence checklist:
- Signed agreement / PO / SOW
- Invoices
- Proof of delivery or performance
- Acceptance or approval emails
- Payment history and current balance due
Example
Invoice #104: $18,500
Invoice #110: $6,250
Payments received: ($10,000)
Base damages: $14,750
B) Breach of contract (repair, replacement, refund, or “benefit of the bargain”)
Base damages in contract cases commonly fall into:
- Cost to repair defective or incomplete work
- Cover / replacement cost (what it cost to replace the promised performance)
- Refund / rescission (return of money paid when performance failed)
- Benefit-of-the-bargain (value promised vs value delivered)
Example: cost to repair
Paid contractor: $40,000
Independent estimate to fix defects: $22,000
Base damages: $22,000 (sometimes more depending on scope and contract terms)
C) Services disputes (scope and acceptance issues)
If you performed services, anchor damages on:
- Rate x hours (if time-based)
- Milestones achieved (if milestone-based)
- Deliverables accepted (proof of acceptance is powerful)
If you were the buyer and the vendor failed:
- Refund portion tied to nonperformance
- Documented rework costs
- Replacement vendor costs
Step 2: Add “recoverable add-ons” (often the leverage)
These can materially increase a contract demand—but only include what has a clear basis and documentation.
A) Interest (contractual or statutory)
Check:
- Whether the contract sets an interest rate for late payments
- Whether state law allows pre-judgment interest on certain contract claims
If you can’t cite a clear basis, keep it as: “plus applicable pre-judgment interest.”
B) Late fees / finance charges
If the contract or invoices clearly state late fees and you can show assent, include them.
C) Attorneys’ fees and costs (major leverage when available)
Many commercial agreements include prevailing party or fee-shifting provisions.
If fees are recoverable:
- Demand fees incurred to date
- Reserve fees continuing to accrue
Suggested language:
“This demand includes attorneys’ fees and costs recoverable under the parties’ agreement and/or applicable law, which will continue to accrue if litigation becomes necessary.”
D) Liquidated damages
If your contract sets a formula (e.g., $X per day for delay), apply it carefully and document the trigger.
E) Consequential damages (use carefully)
These are losses beyond the immediate contract value (downtime, extra labor, expedited shipping, storage, lost opportunities). They’re frequently disputed and require a clean causal link and documentation.
Practical rule: if you can’t explain it in 2–3 sentences with numbers and supporting documents, don’t include it as a hard figure—frame it as a category you will pursue if escalation occurs.
Economic vs Non-Economic Damages (and why this matters in a contract demand)
Most commercial demand letters should be grounded in economic damages—real dollars supported by contracts, invoices, estimates, and records. That’s what makes the demand credible and settlement-ready.
Economic damages in contract cases (the core of your demand)
Economic damages are measurable financial losses, such as:
- Amounts owed under the contract (unpaid invoices, balances due)
- Cost to repair defective work
- Replacement/cover costs
- Refunds and restitution
- Interest and contractual late charges
- Sometimes lost profits, if provable and not speculative
- Attorneys’ fees/costs (when authorized)
In commercial disputes, the best demand letters read like a simple accounting memo: here’s the contract, here’s what was promised, here’s what happened, here’s the shortfall, here’s the math.
Non-economic damages: common in personal injury, rare in contract disputes
Non-economic damages are things like:
- Pain and suffering
- Emotional distress
- Loss of enjoyment of life
- Inconvenience (in the personal injury sense)
Those concepts belong primarily in personal injury and certain tort cases—not typical breach-of-contract claims. In commercial disputes, alleging “stress” or “emotional harm” as a headline damages component often weakens the letter, because it signals the demand isn’t anchored in recoverable contract remedies.
When non-economic-type harm might appear in a business dispute: there are limited exceptions—usually involving separate legal claims beyond contract (e.g., fraud, certain statutory consumer claims, defamation). For most commercial contract matters, your strongest posture is economic damages plus contractual/statutory add-ons.
Quick comparison: contract vs personal injury damages
- Contract (commercial): primarily economic losses tied to the bargain, often constrained by contract terms (limitations of liability, waiver of consequential damages, notice/cure provisions).
- Personal injury: economic losses (medical bills, lost wages) plus non-economic losses (pain/suffering), often evaluated through medical records and impact on daily life.
Bottom line: aim for a demand built on documents and math. Personal injury concepts may be useful as a contrast—but typically shouldn’t drive a contract demand.
Step 3: Subtract risk (or build negotiation room—strategically)
Two demand amounts can be reasonable depending on your strategy:
- Resolve early (credible number that invites payment)
- Set up for litigation (full-theory number supported by documentation)
Common risk factors that justify a discount:
- Unclear contract terms
- Acceptance disputes (“we never approved that”)
- Disputed change orders
- Mitigation issues (did you reduce your losses?)
- Collectability risk
- Likely counterclaims (quality, delay, warranty allegations)
A practical method: estimate “likely recovery”
- Clean documents, clear breach: 80–100%
- Real disputes on scope/performance: 60–80%
- Messy facts / weak paper trail: 40–60%
Then decide whether your demand letter should be:
- Full provable number (with negotiation room), or
- Likely-recovery number (to look maximally reasonable and accelerate settlement)
Step 4: Choose the demand structure (single number vs tiered)
Option 1: Single “all-in” number
Best when:
- Simple breach
- Clean evidence
- You want a fast yes/no
Option 2: Itemized demand (recommended for credibility)
An itemized breakdown helps the other side justify payment internally.
Example itemization:
- Past due balance: $14,750
- Late fees (per contract §__): $1,200
- Interest to date: $430
- Attorneys’ fees to date (recoverable): $2,500Total demand: $18,880Plus continuing interest/fees until paid.
Option 3: Cure demand + settlement offer (strong early-stage tool)
This structure can prompt payment without capping your ceiling:
- Cure by paying $X within 10 days
- If not cured, we will pursue $Y (full damages + fees)
Worked example: arriving at a credible contract demand
Scenario: unpaid invoices + fee-shifting clause
- Base damagesInvoices: $24,750Payments received: ($10,000)Base: $14,750
- Add-onsLate fees: $1,200Interest (estimated): $430Attorneys’ fees to date: $2,500Add-ons: $4,130
- Total demand$18,880 (plus continuing interest/fees)
Suggested phrasing:
“To resolve this matter without litigation, our client demands payment of $18,880 within 10 days. This amount reflects the outstanding balance, contractual late charges, accrued interest, and recoverable fees and costs incurred to date.”
What not to do (common demand letter pricing mistakes)
- Picking a number that “feels right” without backup
- Demanding speculative lost profits without proof
- Ignoring offsets the other side will raise (quality, delay, warranty)
- Forgetting contract terms that limit damages (limitations/waivers)
- Omitting attorneys’ fees and interest when recoverable
- Inflating the demand so high it invites stonewalling
How long should you give them to pay?
Many demand letters use 10–14 days, but the right deadline depends on:
- Payment mechanics (wire vs check vs vendor process)
- Complexity of the dispute
- Relationship considerations
- Urgency (ongoing harm, evidence risk)
The best deadline is short enough to create urgency and reasonable enough to look fair.
When to talk to Douglasfirm before sending the letter
Consider getting counsel involved early if:
- Your contract includes an attorneys’ fees clause
- You expect counterclaims or a “performance” defense
- There’s a collectability concern
- You need to preserve evidence or stop ongoing harm
- You’re considering consequential damages or lost profits
- Your contract has notice/cure provisions or limitations of liability
A demand letter is often your first (and best) chance to control the narrative and set the settlement range—before positions harden.
Narrative closing: why the “right number” settles cases earlier
In commercial disputes, the number isn’t just arithmetic—it’s communication. A credible demand tells the other side three things: (1) you have the documents, (2) you understand the contract remedies, and (3) you’re prepared to press the claim efficiently. Most businesses don’t pay because they’re persuaded by moral outrage; they pay because the risk becomes clear and the path of least resistance is resolution. That’s why well-calculated contract damages—paired with clean exhibits and a realistic deadline—often end disputes before they metastasize into litigation.
FAQ
How do I calculate damages for a contract demand letter?
Start with base damages (amount owed, cost to repair, replacement cost, or refund), then add recoverable items like interest, late fees, and attorneys’ fees if authorized by the contract or law.
Should I demand more than I’ll accept?
Often yes, but only within a defensible range. An inflated number can reduce credibility and delay settlement. A better approach is a provable total with a modest negotiation buffer.
Can I include emotional distress in a business demand letter?
Typically not for breach-of-contract claims. Emotional distress and “pain and suffering” are usually associated with personal injury and certain tort claims, not standard commercial contract disputes.
Can I include attorneys’ fees in my demand?
Yes if the agreement has a fee-shifting provision or a statute applies. Many demand letters include fees incurred to date and reserve the right to seek continuing fees.
What deadline should I set?
Commonly 10–14 days, adjusted for complexity, payment logistics, and relationship considerations.
Talk to Douglasfirm
Not sure what you can reasonably demand under your contract? Douglasfirm can review your agreement, invoices, and timeline and provide a practical demand range and early-resolution strategy.