You finished the job. You sent the invoice. The client goes quiet. Weeks pass. Excuses pile up. Now you’re owed thousands and wondering whether to send a letter of demand or go straight to a statutory demand.
The answer depends on three things: how much you’re owed, whether the client is a company or individual, and how quickly you need resolution.
What is a letter of demand?
A letter of demand is a formal written notice telling someone they owe you money and must pay within a set timeframe — typically 7 to 14 days. It cites the contract, invoice, or agreement that created the debt, outlines the amount owed, and warns of legal action if payment is not made.
Letters of demand work against individuals and companies. They are flexible, low-cost, and often enough to trigger payment without going to court. If ignored, you file a tribunal or court claim to enforce the debt.
What is a statutory demand?
A statutory demand is a formal notice issued under the Corporations Act. It is only used against registered companies (Pty Ltd or Ltd entities). It demands payment of a debt of $4,000 or more within 21 days. If the company does not pay or apply to set aside the demand, you can apply to wind up the company.
This is the most aggressive debt recovery tool available. Directors take statutory demands seriously because an unpaid demand can destroy the company’s credit rating and trigger insolvency proceedings.
A statutory demand requires strict compliance with the Corporations Act. You must use the prescribed form, attach a supporting affidavit, and serve it correctly. Mistakes can invalidate the demand and expose you to costs.
Key differences: statutory demand vs letter of demand
| Factor | Letter of Demand | Statutory Demand | |————|———————-|———————-| | Who it works against | Individuals and companies | Companies only (Pty Ltd / Ltd) | | Minimum debt | No minimum | $4,000 | | Timeframe to pay | 7-14 days (flexible) | 21 days (fixed by law) | | Consequences if ignored | You file a tribunal/court claim | Company risks wind-up proceedings | | Formality | Standard business letter | Prescribed statutory form + affidavit | | Cost | Low | Moderate (affidavit, service costs) | | When to use | First step, disputed debts, smaller amounts | Undisputed debts $4K+, unresponsive companies |
When to use a letter of demand
A letter of demand is the right first step in most unpaid invoice situations. Use it when:
- The debt is under $4,000
- The client is an individual or sole trader
- You want to preserve the relationship
- The debt is partially disputed
- You need a low-cost first step
- You are not sure if court action is worth it yet
Most unpaid invoices settle after a letter of demand. Clients who were ignoring emails suddenly respond when they receive a formal letter threatening legal action. If the letter fails, you can escalate to a tribunal application or statutory demand.
When to use a statutory demand
A statutory demand is the nuclear option. Use it when:
- The debt is $4,000 or more
- The client is a registered company
- The debt is undisputed
- Previous demands have been ignored
- The company is trading but refusing to pay
- You are prepared to follow through with wind-up proceedings if necessary
Statutory demands are powerful because they trigger a 21-day countdown. If the company does not pay or apply to set aside the demand, a presumption of insolvency arises. Most companies pay rather than risk liquidation.
What happens after you send a letter of demand
Once the letter is delivered, the client has the timeframe stated in the letter to respond — usually 7 to 14 days. Three outcomes are possible:
- They pay — the most common result if the letter is properly drafted
- They negotiate — they propose a payment plan or dispute part of the amount
- They ignore it — you escalate to a tribunal application or statutory demand
If they ignore the letter, you file a claim in the relevant tribunal (VCAT, NCAT, QCAT, etc.) or court depending on the amount. The letter becomes evidence that you attempted to resolve the dispute before filing.
What happens after you serve a statutory demand
Once the statutory demand is served, the company has exactly 21 days to either:
- Pay the debt in full
- Apply to set aside the demand — they file an application in the Supreme Court arguing the debt is disputed or the demand is defective
- Do nothing — after 21 days, a presumption of insolvency arises and you can apply to wind up the company
If the company applies to set aside the demand, you may need to defend the application in court. If they do nothing, you can file a wind-up application. Most companies pay rather than face liquidation.
Common mistakes to avoid
Using a statutory demand for a disputed debt — if the company has a genuine dispute about the amount or liability, the demand will likely be set aside. Use a letter of demand first to clarify the dispute.
Serving a statutory demand incorrectly — service must comply with the Corporations Act. Personal service on a director or registered office is typically required. Incorrect service invalidates the demand.
Issuing a statutory demand for less than $4,000 — the statutory minimum is $4,000. If your debt is lower, use a letter of demand and file a tribunal claim if necessary.
Skipping the letter of demand — even if you plan to issue a statutory demand, send a letter of demand first. It gives the client a chance to pay and strengthens your position if you escalate.
Not following through — if you issue a statutory demand and the company ignores it, you must be prepared to file wind-up proceedings. Empty threats damage your credibility.
How ClaimDone helps
ClaimDone prepares both letters of demand and statutory demands based on the evidence you upload. For a letter of demand, you complete a short intake form, upload your invoice and supporting documents, and our Proprietary AI Engine drafts a professionally formatted letter. The letter is delivered automatically to the client via email and registered post.
For a statutory demand, ClaimDone prepares the prescribed form and a supporting affidavit template based on your debt details. You swear the affidavit before a JP or solicitor, then serve the demand on the company. The entire process takes 60 minutes.
Both services are fixed-fee, Australia-wide, and require no legal knowledge.
Choose your tool and act
If your client won’t pay the final invoice, waiting makes it harder to recover the debt. Memories fade, evidence disappears, and the client may become insolvent.
Start with a letter of demand if the debt is under $4,000, the client is an individual, or you want to preserve the relationship. Escalate to a statutory demand if the debt is $4,000 or more, the client is a company, and previous attempts have failed.
ClaimDone can prepare either document in under an hour. Upload your invoice, answer a few questions, and get a legally precise document ready to send. Start your statutory demand now or send a letter of demand if you need a first step.
Frequently Asked Questions
Can I issue a statutory demand to a sole trader?
No. Statutory demands only work against registered companies (Pty Ltd or Ltd). If the client is a sole trader or individual, use a letter of demand and file a tribunal claim if they do not pay.
What if the client disputes part of the invoice?
Do not use a statutory demand for disputed debts. If the client has a genuine dispute about the amount or liability, the demand will likely be set aside. Use a letter of demand to clarify the dispute, then file a tribunal claim if necessary.
How long does it take to prepare a statutory demand?
ClaimDone prepares the prescribed form and supporting affidavit template in 60 minutes. You then swear the affidavit before a JP or solicitor and serve the demand on the company. The entire process typically takes 1-2 business days.
What happens if the company ignores my letter of demand?
If the company ignores your letter of demand, you can escalate to a statutory demand (if the debt is $4,000 or more) or file a tribunal application. The letter becomes evidence that you attempted to resolve the dispute before filing.
Can I use a statutory demand for a debt under $4,000?
No. The statutory minimum is $4,000. If your debt is lower, use a letter of demand and file a tribunal claim if the client does not pay.
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