SaaS Founder’s Guide to Demand Letters for Unpaid Invoices and License Misuse
SaaS is supposed to be the “easy” business model. Recurring revenue, automated billing, predictable cash flow. Then a few enterprise customers stop paying, their finance team disappears into radio silence, and you discover that one of your “mid-tier” accounts has quietly rolled your product out to triple the number of users they paid for.
At that point you are not dealing with a churn problem. You are dealing with a collection and enforcement problem.
This guide is written for SaaS founders and operators, not lawyers. It walks through how to think about unpaid invoices and license misuse, what your own contracts and logs give you in terms of leverage, when it makes sense to send a formal demand letter, and how to write that letter without pretending to be outside counsel. It ends with two concrete templates you can adapt: one for unpaid invoices, one for license misuse and over-deployment.
No hyperlinks, no legalese for its own sake. Just practical structure grounded in how SaaS contracts and license enforcement actually work in 2025.
Two different problems: unpaid invoices vs. license misuse
“Customer is behind on payment” and “customer is violating license terms” overlap but are not identical.
Unpaid invoices are essentially a commercial debt problem. You provided access to the service under agreed pricing, you issued invoices per your order form or MSA, and the customer simply did not pay. SaaS debt collection playbooks all say a version of the same thing: build a clear accounts receivable process with reminders and dunning flows, escalate to firmer pre-collections notices, and only then consider third-party collections or legal action.(retrievables.com) A demand letter here is your last internal escalation: formal, detailed, and clearly stating what is owed and what happens next.
License misuse is closer to an IP enforcement problem. A SaaS license agreement gives the customer defined rights to access and use your hosted software under specific terms and limitations.(Enzuzo) When a customer blows through those limits by adding unlicensed users, using the service outside permitted territory, sublicensing to affiliates or clients without consent, or using trial or internal licenses in production, they are not just slow to pay; they are using your product in ways your contract never allowed. In many jurisdictions, acting outside the scope of a license can expose them to both breach-of-contract claims and, if the license is drafted correctly, copyright infringement remedies.(Romano Law)
Practically, this means your demand letter for unpaid invoices is focused on amounts and dates. Your demand letter for license misuse is focused on overuse, scope, corrective steps, and the risk to the customer if they refuse to regularise their position.
What your SaaS agreements usually say about payment and license scope
Most modern SaaS deals are governed by some combination of an order form, a master services agreement, and an online license or terms of service.
On the payment side, those documents typically specify subscription fees, billing cycles, payment methods, due dates, and late-payment consequences such as suspension, interest, or collections. Guides for SaaS MSAs and collections stress the importance of spelling out renewal terms, fee adjustments, and what happens if payments are late, precisely so you can point back to something written when you chase debt.(Zylo)
On the license side, a SaaS license agreement defines what the customer is allowed to do. Typical clauses explain that the customer gets a limited right to access and use the hosted service, subject to usage metrics such as number of named users, seats, transactions, environments, or API calls. They also lay out restrictions: no resale, no sharing logins, no using the service to provide competing offerings, no reverse engineering, no circumventing technical controls, no use beyond internal business purposes, and no access outside agreed regions or entities.(Enzuzo)
Well-drafted agreements go further and characterize key license restrictions as conditions of the license grant rather than mere promises. That distinction matters. If a use restriction is written as a condition and the customer exceeds it, courts have held that the licensor may treat that as copyright infringement in addition to breach of contract, which opens up broader remedies such as injunctions and statutory damages, not just unpaid fees.(Google GitHub)
All of that becomes raw material for your demand letter. You are not inventing obligations; you are pointing back to commitments the customer already accepted.
Building your record before you escalate
Before you send anything that looks like a demand letter, tighten your dossier. For unpaid invoices, that means assembling the contract, order forms, invoices, and the communication trail about payment. For license misuse, it means tying together your audit or telemetry data, screenshots, and the license terms.
Most SaaS finance guides recommend the same basic elements for a professional collection letter: identify the debtor and account clearly, specify the amount owed, reference invoice numbers and due dates, restate payment terms, set a firm deadline, and indicate what happens if the balance is not resolved.(Upflow)
For license misuse, your evidence is more technical. SaaS license management platforms and usage-monitoring tools encourage providers to maintain a central registry of customers and entitlements, track actual seat usage and feature access, and log suspicious patterns.(Reprise Software) If your logs show that the customer purchased fifty seats and is consistently running two hundred active user sessions, or that a “test tenant” is handling production traffic, you want that data summarized and preserved.
Objectively, your letter will be much more compelling if you can say, “Under Order Form A, you purchased one hundred seats; our logs for the last ninety days show an average of one hundred eighty unique active users with your domain, which exceeds your licensed quantity by about eighty percent,” rather than “we think you are cheating.”
Unpaid invoices: when a demand letter makes sense
With pure non-payment, you generally do not start with a demand letter. You start with polite reminders, then slightly firmer statements, then a clear pre-collections notice. Only when those have failed and the amount is material does it make sense to send something that looks like a formal notice before escalation.(retrievables.com)
A demand letter is worth considering when three things are true. First, the unpaid balance is big enough to matter to your business. Second, the customer is clearly in default under the contract: due dates have passed, grace periods (if any) are gone, and your own invoicing has been accurate. Third, softer attempts at resolution have been ignored or met with vague excuses that never turn into an actual payment plan.
At that point the purpose of a demand letter is not to vent. It is to put a concrete, dated marker in the ground that says: here are the facts, here is the amount, here is our deadline, and here is what we are prepared to do next. That “next” could be handing the account to a collection agency, filing in small-claims court for modest amounts, or escalating through counsel for larger ones.(Glencoyne)
License misuse: when a demand letter beats an immediate audit or lawsuit
Software vendors have been running license audits for years, and in 2025 the trend has only intensified. Surveys and industry statistics show that most organizations are not fully compliant with license terms, that under-licensing is common, and that audits often result in substantial true-up fees.(BetterCloud)
You do not have to play the full “big vendor audit” game every time you suspect a mid-market customer has more seats than they paid for. A targeted, well-structured demand letter can often do the job of forcing the conversation into the open.
A letter is appropriate when you have reasonably clear evidence of overuse or misuse, your license terms actually cover the scenario, and you believe the customer can afford to regularise but is not doing so voluntarily. If the customer is using your product in ways that create real IP risk for you or their own downstream customers, you may also need to act to prevent further misuse, not just to collect extra fees.
The strategic advantage of a letter over a full audit is that you start by assuming good faith and offering a path to compliance. You are essentially saying: our logs suggest you are over your entitlement; here is what the contract says; we want to resolve this by having you either reduce usage or pay for what you are actually using, rather than jumping straight to legal threats. You can still reserve the right to run a formal audit or pursue infringement remedies if they stonewall.
How to write a demand letter for unpaid SaaS invoices
You do not need legal jargon. You do need clarity and specificity.
An effective letter usually does six things in sequence.
It identifies the parties and account in a way that finance and legal at the customer recognize immediately.
It recites the core commercial terms: the subscription or order form, the services you provided, and the payment terms you agreed on.
It itemizes what is unpaid: invoice numbers, dates, amounts, and how long they have been overdue.
It describes what you have already done to resolve the matter informally, so the reader sees that this is not coming out of nowhere.
It states what outcome you want, with a precise figure and a deadline.
It explains, in calm terms, what you will consider if the customer still does not pay, whether that is suspension, collections, or legal action.
Here is a non-lawyer template that follows that structure.
Template: demand letter for unpaid SaaS invoices
[Your Name]
[Your Title]
[Company Name]
[City, Country]
[Email Address]
[Date]
[Customer Name]
[Customer Title]
[Customer Company]
[Customer Address or City]
Subject: Outstanding Subscription Invoices for [Product Name]
Hello [Customer First Name],
I am writing regarding the unpaid invoices on your [Product Name] subscription for [Customer Company].
Under our [name of agreement, for example “SaaS Subscription Agreement dated [date]” or “Order Form #[number] accepted on [date]”], we provide [short description of service, for example “access to our [Product Name] platform for up to [number] users”] in exchange for the subscription fees described in that document. The agreement states that invoices are due [summary of payment terms, for example “within thirty days of the invoice date”].
Our records show the following invoices remain unpaid as of today, despite being past due:
Invoice [number] dated [date] in the amount of [amount].
Invoice [number] dated [date] in the amount of [amount].
Total outstanding balance: [total amount].
We have sent reminders about these invoices on [dates or general reference such as “several occasions over the past [time period]”] and have attempted to resolve this informally with your team. To date we have not received payment or a concrete plan to bring the account current.
We understand that delays and internal issues can happen. At the same time, we cannot continue to provide service indefinitely on an unpaid basis. We therefore ask that you arrange payment of the full outstanding balance of [total amount] no later than [specific date, usually ten to fourteen calendar days from the date of the letter].
If you believe any of the amounts above are incorrect, please provide details in writing by that same date so we can review them with you. If cash-flow is an issue but you are committed to remaining a customer, we are open to discussing a short payment schedule that clears the balance over a defined period, provided that we agree on it in writing and you make the first payment promptly.
If we do not receive payment or hear from you with a concrete proposal by [date], we will need to consider next steps. Those may include suspending access to the service, referring the account to a collections partner, and, if necessary, pursuing legal remedies available for unpaid commercial invoices. Our preference is to avoid that and to maintain a positive relationship by resolving this now.
Please confirm receipt of this letter and let us know how you wish to proceed.
Best regards,
[Your Name]
[Title]
[Company Name]
You can tighten the wording or make it friendlier depending on the relationship. The key is that you now have a dated, unambiguous notice in your file.
How to write a demand letter for license overuse or misuse
License misuse letters are more sensitive. You are pointing out behavior that may amount to breach of contract and, depending on your drafting, unauthorized use of your IP. At the same time, many customers are in the gray zone out of negligence rather than malice. A tone of “we noticed this, here is what the contract says, let’s fix it” often gets you further than “you are pirates.”
An effective license-misuse letter does a similar set of things, but tuned to scope rather than pure dollars.
It identifies the customer account and the relevant agreement.
It quotes or paraphrases the key license grant and restrictions that define permitted use, such as limits on users, environments, subsidiaries, geography, or resale.(Enzuzo)
It describes, in factual language, what your telemetry and records show. That might be seat counts, number of active users, nature of deployment, or evidence of access by unapproved entities. SaaS license-management literature emphasizes the importance of concrete, log-based evidence here rather than speculation.(Reprise Software)
It states your conclusion that current use is outside the agreed license scope and therefore not authorized.
It offers a path to regularisation: either purchase the necessary additional entitlements, reduce usage to within scope, or both, by a specific date.
It explains, in measured terms, what you will consider if they do not cooperate, which may include exercising audit rights, suspending access, terminating the agreement, or pursuing contractual and IP remedies.(Larsen Law Offices, LLC)
Here is a template in that vein.
Template: demand letter for SaaS license misuse or overdeployment
[Your Name]
[Your Title]
[Company Name]
[City, Country]
[Email Address]
[Date]
[Customer Name]
[Customer Title]
[Customer Company]
[Customer Address or City]
Subject: License Compliance for [Product Name]
Hello [Customer First Name],
I am reaching out about how [Customer Company] is currently using [Product Name] under our agreement dated [date of SaaS agreement or order form].
Under that agreement, [Company Name] grants [Customer Company] a limited right to access and use [Product Name] for your internal business purposes, subject to the usage metrics and restrictions set out in the contract. In particular, the agreement provides that your use is limited to [describe key limits, for example “up to [number] named users within [Customer Company]” or “one production environment and one non-production environment”] and that you may not [describe relevant restriction, for example “permit access by affiliates or third parties without our written approval” or “exceed the licensed user count without purchasing additional subscriptions”].
As part of our standard license-management process, we periodically review usage data. Over the past [time period], our telemetry has consistently shown levels of use that are significantly above your licensed entitlement. By way of example, during the [recent period], we observed an average of [number] unique active users per month associated with your domain, compared to the [number] users covered by your current order form. We have also seen access patterns indicating [describe any other issue, such as “logins from domains associated with your external clients” or “production traffic flowing through an instance designated as ‘test only’”].
Based on this data, our view is that [Customer Company] is currently using [Product Name] beyond the scope of the license grant in our agreement. That kind of overuse is not authorized under the contract and exposes both of us to unnecessary risk. From our side, we have an obligation to enforce the terms under which we make our software available. From your side, continuing to run outside agreed parameters may create contractual and intellectual property issues if left unaddressed.(Enzuzo)
Our goal is to resolve this cooperatively and keep you in a compliant position. To do that, we propose the following path. First, we would like your team to review the usage information outlined above and either confirm that it matches your understanding or let us know if there is relevant context we should consider. Second, assuming the overuse figures are accurate, we ask that by [specific date, for example thirty days from this letter] you either:
acknowledge the overdeployment and agree in writing to purchase the additional [seats or other metrics] required to cover your actual usage going forward, including a true-up for the period in which you were over your entitlement; or
reduce your usage to within the limits of your current license and confirm in writing that you have taken steps to prevent further out-of-scope use.
If we do not hear from you by [date], or if we are unable to agree on a path to compliance, we will need to consider the options available under our agreement and applicable law. Those may include exercising our audit rights, suspending access to the service for non-compliant users or environments, or pursuing contractual and other remedies for unlicensed use. None of that is our preferred outcome. We value [Customer Company] as a customer and would much rather resolve this by aligning your entitlements with your actual needs.
Please confirm receipt of this letter and let us know how you would like to proceed. If it would be helpful, we are happy to set up a call with your technical and procurement teams to walk through the usage data in more detail and discuss the most practical way to bring the account into compliance.
Best regards,
[Your Name]
[Title]
[Company Name]
You can adapt the tone depending on whether the customer is a small startup with a messy internal rollout or a sophisticated enterprise that knows exactly what it is doing. The structure remains the same: show the contract, show the facts, offer a path to cure, reserve your rights.
Common questions from SaaS founders about demand letters
Do I have to send a demand letter before suing or sending an account to collections?
In many jurisdictions you are not legally required to send a demand letter before suing on an unpaid invoice, but in practice it is almost always wise. It creates a clear record, shows a court or arbitrator that you tried to resolve the issue without litigation, and sometimes prompts payment from a customer who has simply been ignoring softer nudges. Collections-focused guides for SaaS and B2B businesses routinely recommend a final, clear “pre-collections” or “pre-legal” notice as the last internal step.(retrievables.com)
Can I combine unpaid invoice and license misuse issues in a single letter?
You can, but you should structure it carefully. If the same customer is both behind on invoices and materially overusing licenses, you might treat unpaid invoices as one section and license compliance as another, with separate asks and deadlines. Just be careful not to make statements that could be read as you “selling” licenses after the fact to legalize clearly unauthorized use without addressing underlying contract breaches. It is often cleaner to stabilize one problem first, usually unpaid invoices, and then address compliance with a focused communication.
What if my SaaS contracts are weak on license scope and audit rights?
Many early-stage SaaS companies start with very lightweight terms that do not spell out user caps, audit rights, or the consequences of overuse. In that case your legal leverage on license misuse may be weaker, but you still have a basic contract: you provided services with an understood usage pattern and price, and the customer expanded use without paying for it. Industry practice on SaaS license agreements is increasingly clear that licensing terms should define access rights, metrics and restrictions explicitly to avoid this ambiguity.(Enzuzo) Regardless of what you do with existing customers, you should use what you are learning now to harden your templates for future deals.
Can license misuse really be treated as copyright infringement, not just breach of contract?
In some cases, yes. Where a license is limited in scope and the licensee acts outside that scope, courts have allowed licensors to assert copyright infringement in addition to breach of contract.(Google GitHub) However, this often depends on how the license is drafted, including whether key restrictions are written as conditions tied to the grant. Even when infringement is available, many SaaS vendors still frame their initial letters in contract terms and keep the full IP arguments in reserve unless the customer is clearly acting in bad faith.
Should I threaten to immediately terminate or cut off access in the demand letter?
Sometimes, but not always. Your agreements probably give you the right to suspend or terminate for non-payment or material breach. Using that right is a business decision. Immediate suspension can strengthen your leverage but can also anger customers and their users, damage your reputation, and escalate disputes unnecessarily. Many SaaS collections guides suggest a graduated approach: gentle reminders, firmer notices, a clear demand letter with a suspension warning, and only then actual suspension if the customer still does not engage.(retrievables.com) For license misuse, partial measures such as disabling unlicensed features or extra seats, while maintaining core functionality for properly licensed users, can strike a balance.
What if the customer claims the invoices are wrong or the service was defective?
In that case your dispute is not just about non-payment; it is about what was actually delivered. You should take claims of factual error or serious defects seriously, review the underlying data and service history, and decide whether there is some validity to their position. Stripe and other billing-focused resources point out that many unpaid invoices trace back to misunderstandings, billing errors, or unresolved performance issues, not pure bad faith.(Stripe) Your demand letter can still proceed, but may need to acknowledge the dispute and either incorporate your proposed resolution or invite them to specify their objections in writing by a set date.
Does sending a demand letter always mean the relationship is dead?
Not necessarily. In B2B SaaS, sophisticated customers are used to commercial friction. A clear, professional letter that stays focused on facts and solutions can sometimes reset expectations and lead to a cleaner long-term relationship, especially if the original problem came from internal disorganization on their side rather than an intent to cheat you. That said, if a customer has deliberately withheld payment or knowingly overused your product while denying it, you may decide that the relationship is not worth preserving even if they eventually pay.
How do I handle small, cross-border debts where litigation is unrealistic?
One reality of SaaS is that you will have customers in jurisdictions where it is not practical to sue for a few thousand dollars in unpaid fees. A demand letter can still have value there as a deterrent and as a way of clarifying that you do not simply forget debts. For truly small or uncollectible amounts, your real mitigation is process: tightening billing flows, using upfront or more frequent billing, and being quicker to suspend service when accounts go cold so that unpaid balances do not accumulate.(retrievables.com)
Should I reference statutory interest or late-payment penalties in the letter?
If your contract provides for interest on late payments or specific late fees, you can mention that you reserve the right to apply them. Some jurisdictions also have default rules allowing businesses to charge interest or fixed sums on commercial late payments.(Glencoyne) Whether you actually charge them is a commercial decision. Often it is more productive to focus the letter on clearing principal and use waiver of interest as a bargaining chip if the customer pays promptly.
How often should I run license-misuse checks, and must I always act on them?
SaaS license-management resources suggest continuous or regular monitoring of usage to control cost and compliance, both for you and for customers.(Reprise Software) That does not mean you must go after every minor overuse. You can set internal thresholds, for example only acting when overuse exceeds a certain percentage or persists for a defined period despite warnings. The important thing is consistency: if you never enforce your terms, you train the market to treat your metrics as suggestions. If you enforce them fairly and predictably, most serious customers will treat your limits as real.
A good demand letter is not a lawsuit in miniature. It is a business document that tells a simple story: here is what we agreed, here is what happened, here is what you owe, here is how we propose to resolve it, and here is what we will do if you choose not to engage. For a SaaS founder, getting comfortable with that kind of communication is as much a part of the job as product and sales. It is how you protect the engine that funds everything else.