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A demand letter for payment is a formal notice requesting payment from a debtor for an outstanding amount, specifying a deadline for payment. It serves as a final warning before legal action may be taken. In this video, essential information about payment demand letters is reviewed, including how to obtain a free official template. Sending a demand letter is crucial as it alerts the debtor to potential legal consequences, documents the reason for the demand, specifies the amount owed, and provides a written record that may be useful in legal disputes. Additionally, it can be utilized to propose a reduced settlement as an incentive for payment.