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A demand letter for payment is a formal notice requesting that a debtor pay an owed amount by a specified date, serving as a final warning before legal action. This video discusses the importance of sending a demand letter, which alerts the debtor to potential legal consequences, documents the reason for payment, and provides a clear record of the amount due. It emphasizes the advantages for the collector, including establishing a written demand for use in legal disputes and the possibility of offering a reduced settlement to encourage payment. Additionally, viewers will learn where to obtain a free and official demand letter template.