What to Do When a Client Refuses to Pay: Australian Small Business Guide

You delivered the work. You sent the invoice. The payment date passed. Now the client is not responding, making excuses, or outright refusing to pay.

This guide walks through the escalation ladder from first reminder to tribunal proceedings, with clear decision points at each stage.

Stage 1: Friendly Invoice Reminder (Week 1-2)

Start with the assumption of good faith. Invoices get missed. Emails go to spam. Accounts staff go on leave.

Send a polite email referencing the original invoice, the amount owing, and the due date. Attach the invoice again. Keep it short and professional.

Decision point: If the client responds and pays within 7 days, you are done. If they respond with a genuine dispute about quality or scope, you may need to negotiate. If they ignore you completely, move to Stage 2.

Stage 2: Formal Payment Demand (Week 2-3)

Send a written demand stating:

• The amount owing
• The original invoice date and due date
• A new deadline for payment (typically 7 days)
• That you will take further action if payment is not received

Send this by email and registered post if the amount is significant. Keep copies.

Decision point: If they pay, you are done. If they respond with a credible dispute, consider whether it has merit. If they continue to ignore you or make excuses without paying, move to Stage 3.

Stage 3: Letter of Demand (Week 3-4)

A letter of demand is a formal legal document that states your intention to commence legal proceedings if payment is not made. It sets out the facts, cites the applicable law, and gives a final deadline.

A properly drafted letter signals that you are serious and prepared to take the matter further.

What to include:

• Your details and the debtor’s details
• A clear statement of the debt (amount, invoice number, date)
• The legal basis for the claim (breach of contract, goods supplied, services rendered)
• A deadline for payment (typically 7-14 days)
• A statement that you will commence tribunal or court proceedings if payment is not received

Decision point: If they pay, the matter is resolved. If they respond with a genuine dispute and propose mediation, consider whether that is worthwhile. If they ignore the letter or refuse to pay without a valid reason, move to Stage 4.

Stage 4: Final Demand (Week 4-5)

If the letter of demand does not produce payment, send a final demand. This is shorter and more direct. It states that proceedings will be filed within 7 days unless payment is received in full.

At this stage, prepare your tribunal application so you can file immediately if the deadline passes.

Decision point: This is your last opportunity to resolve the matter without tribunal proceedings. If they pay, you are done. If they continue to refuse, you file.

Stage 5: Tribunal Application (Week 5-6)

If the debt is under the tribunal limit in your state (typically $10,000 to $25,000 depending on the state), you file an application with the tribunal or court for your state:

• New South Wales: Local Court (Small Claims Division up to $20,000; General Division up to $100,000)
• Victoria: Victorian Civil and Administrative Tribunal (VCAT)
• Queensland: Queensland Civil and Administrative Tribunal (QCAT)
• South Australia: Magistrates Court (Minor Civil)
• Western Australia: Magistrates Court (minor case)
• Tasmania: Magistrates Court (minor civil claim up to $15,000)
• Australian Capital Territory: ACT Civil and Administrative Tribunal (ACAT)
• Northern Territory: Northern Territory Civil and Administrative Tribunal (NTCAT)

What you need:

• Completed application form (available on the tribunal website)
• Filing fee (typically $50-$200 depending on the claim amount)
• Evidence: invoice, contract, correspondence, proof of delivery
• A clear statement of claim setting out the facts and the legal basis

The tribunal will serve the application on the debtor and set a hearing date. The debtor has an opportunity to file a response. If they do not respond, you can apply for a default judgment.

Decision point: At this stage, the debtor may still offer to settle. Consider whether the settlement offer is acceptable. If the matter proceeds to hearing, you will need to attend (in person or by video) and present your case.

Stage 6: Judgment and Enforcement (After the Hearing)

If you win at tribunal, you receive a judgment or order requiring the debtor to pay. You still need to enforce it.

Enforcement options:

• Garnishee order: The tribunal can order the debtor’s bank or employer to pay you directly from their account or wages
• Warrant for seizure of property: A sheriff or bailiff can seize and sell the debtor’s assets to satisfy the judgment
• Examination summons: The debtor is required to attend court and disclose their financial position under oath

Enforcement can take time and may involve additional costs. If the debtor has no assets or income, enforcement may not be practical.

When to Escalate and When to Write It Off

Not every unpaid invoice is worth pursuing to tribunal.

Escalate if:

• The amount is significant relative to your business turnover
• You have clear evidence (invoice, contract, proof of delivery)
• The debtor has the capacity to pay (they are still trading, they have assets)
• The debt is not genuinely disputed

Consider writing it off if:

• The amount is small and the cost of your time exceeds the debt
• The debtor is insolvent or has disappeared
• The debt is genuinely disputed and you do not have strong evidence
• The debtor is overseas and enforcement would be impractical

Preventing Non-Payment in Future

Once you have recovered a debt (or written it off), take steps to reduce the risk:

• Terms and conditions: Have clear written terms stating payment due dates, late fees, and your right to suspend work for non-payment
• Deposits and progress payments: For larger projects, require a deposit upfront and progress payments at milestones
• Credit checks: For new clients or large contracts, consider a credit check or ask for trade references
• Stop work if payment stops: If a client misses a progress payment, pause work immediately
• Invoice promptly: Send invoices as soon as work is completed

How Claim Done Helps Australian Small Businesses Recover Unpaid Debts

Claim Done is built for Australian small businesses dealing with unpaid invoices.

Letter of demand: Tell us about your invoice and evidence. Claim Done’s Programmatic Algorithms draft a professionally formatted letter citing the applicable Australian law and deliver it by email. $49 flat fee, done in about 5 minutes.

Tribunal application: If the letter does not produce payment, Claim Done prepares your tribunal application with a clear statement of claim and a witness statement. You file it yourself.

Claim Done does not give legal advice — it generates legal-style documents based on the information you give us.

Take Action Now

When a client refuses to pay, start with a friendly reminder. Escalate to a formal demand. If that fails, send a letter of demand. If they still refuse, file a tribunal application.

A properly drafted letter signals that you are serious. That is often enough to produce payment.

The key is to act quickly and escalate methodically. The longer you wait, the harder it becomes to recover the debt.

Claim Done’s letter of demand service uses its Programmatic Algorithms to deliver a professionally drafted demand letter in about 5 minutes for $49. Tell us about your invoice, answer a few questions, and Claim Done handles the rest — including email delivery.

Frequently Asked Questions

How long should I wait before sending a letter of demand?

Typically 2-3 weeks after the invoice due date. Send a friendly reminder first, then a formal payment demand, then a letter of demand. If the client is genuinely disputing the work or the amount, address that before escalating.

Can I charge interest on an overdue invoice?

Yes, if your terms and conditions state that interest applies to overdue invoices. The rate must be reasonable (typically 10-15% per annum). Some states also have penalty interest rate provisions that may apply.

What if the client is in another state?

You can still pursue the debt. You file in the tribunal or court in your state or the debtor’s state, depending on where the contract was performed. Enforcement across state borders is possible but may be more complex.

Do I need a lawyer to go to tribunal?

No. Tribunals are designed for self-represented parties. You present your evidence, the other side presents theirs, and the tribunal member makes a decision. For straightforward debt recovery matters, most small businesses represent themselves successfully.

What happens if I win at tribunal but the debtor still does not pay?

You enforce the judgment through garnishee orders, seizure of property, or examination summons. Enforcement can take time and may involve additional costs. If the debtor has no assets or income, enforcement may not be practical.