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A demand letter for payment is a final warning to a debtor to pay an amount owed by a specific date or face legal action. It serves to notify the debtor, record the reason for payment, inform the exact amount owed, and request payment in writing. Sending a demand letter is beneficial for the collector, as it puts the debtor on alert, provides evidence for legal disputes, and can be used to offer a reduced settlement. It is essential for collectors to use an official template for demand letters.