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A demand letter for payment is a formal notice requesting a debtor to pay an owed amount by a specific date, often used as a final warning before legal action. In the video, key points about demand letters are reviewed, including their importance and how to obtain a free official template. The letter serves to alert the debtor about the risk of legal action, document the reason for the payment demand, specify the amount owed, state a due date, and provide a written record for potential legal disputes. Additionally, it can offer a reduced settlement as an incentive for payment. The demand letter must adhere to specific requirements.