Client Won’t Pay Your Invoice: Letter of Demand or Statutory Demand First?

You’ve done the work. You’ve sent the invoice. You’ve followed up politely. The client still hasn’t paid.

Most Australian business owners face this situation. You have two formal demand options. Choosing the wrong one wastes time and money. This guide explains when to use a letter of demand, when to escalate to a statutory demand, and how to decide based on your situation.

The Two Demand Options

Letter of Demand

A letter of demand is a formal written notice stating that payment is overdue and must be made within a specified timeframe (typically 7-14 days). It works for any debtor — individual, sole trader, partnership, or company — and any amount.

The letter sets out the debt details and warns of legal action if payment isn’t received. It’s sent by registered post or email, creating a clear paper trail.

Key features:

• Works against any debtor type
• No minimum debt amount
• Typically gives 7-14 days to pay
• Required before most tribunal or court claims
• Cost-effective first step

Statutory Demand

A statutory demand is a formal notice under the Corporations Act. It only works against registered companies (Pty Ltd or Ltd entities). The company gets 21 days to pay the debt or apply to set aside the demand. If they do neither, you can start wind-up proceedings.

Key features:

• Only works against registered companies
• Minimum debt: $4,000
• Fixed 21-day payment period
• Must use prescribed form with supporting affidavit
• Triggers insolvency consequences
• More expensive to prepare and serve

When to Use a Letter of Demand First

Use a letter of demand as your first step in these situations:

The debt is under $4,000 Statutory demands have a $4,000 minimum threshold. If you’re owed less, a letter of demand is your only formal demand option before tribunal proceedings.

The debtor is an individual or sole trader Statutory demands only work against companies. If your client is trading as an individual, sole trader, or partnership, use a letter of demand.

You want a fast, low-cost first strike A letter of demand can be sent the same day. It’s the most cost-effective way to signal you’re serious without immediately escalating.

The debt might be genuinely disputed If there’s any chance the client has a legitimate dispute about the work quality, scope, or price, start with a letter of demand. Statutory demands must only be used for undisputed debts — using one inappropriately can backfire.

You need to satisfy pre-action requirements Most tribunals and courts require you to make a formal written demand before filing a claim. A letter of demand ticks that box and gives you a clear timeline for the next step.

You want to preserve the business relationship A letter of demand is firm but doesn’t carry the same reputational and insolvency implications as a statutory demand. If there’s any chance of ongoing work or referrals, start here.

When to Use a Statutory Demand Instead

Skip straight to a statutory demand in these situations:

The debt is over $4,000 and the debtor is a company If you meet both criteria, a statutory demand is often more effective. The 21-day deadline and insolvency consequences create real urgency.

You’ve already sent a letter of demand and been ignored If your letter of demand deadline has passed with no payment or response, and the debt is over $4,000, escalate to a statutory demand.

The company is asset-rich but cash-poor Some companies ignore letters of demand because they know tribunal proceedings take months. A statutory demand forces them to act immediately or face wind-up proceedings that can freeze bank accounts and trigger director liability.

You suspect the company is insolvent If the company is already struggling, a statutory demand can force the issue. Directors of insolvent companies face personal liability if they continue trading while insolvent.

You want maximum leverage fast A statutory demand is the most powerful debt recovery tool available against a company. It creates a presumption of insolvency after 21 days, which banks, suppliers, and other creditors take seriously.

The Hybrid Approach: Letter First, Statutory Second

For most business owners owed over $4,000 by a company, the smart strategy is:

1. Send a letter of demand first — give them 14 days to pay
2. If ignored, escalate to a statutory demand — give them 21 days to pay or face wind-up
3. If still ignored, file wind-up proceedings or take them to tribunal

This approach gives the debtor two clear chances to pay before you start legal proceedings. It also creates a strong paper trail showing you acted reasonably.

The only time to skip the letter and go straight to statutory demand is when you’ve already had multiple informal conversations, sent multiple invoice reminders, and the company is clearly stalling.

What Happens After You Send Each Demand

After a Letter of Demand

The debtor typically does one of three things:

1. Pays in full — problem solved
2. Proposes a payment plan — you can accept, counter-offer, or refuse
3. Ignores it or disputes the debt — you proceed to tribunal or court

If they ignore your letter of demand, you can file a claim in the relevant tribunal or court depending on your state and the amount. The letter proves you made a formal attempt to resolve the matter before filing.

After a Statutory Demand

The company has three options:

1. Pay the debt in full within 21 days — problem solved
2. Apply to court to set aside the demand — they must show a genuine dispute or other defect
3. Do nothing — after 21 days, you can file a wind-up application

If the company does nothing, you gain a presumption of insolvency. You can then file a wind-up application. The company must either pay, prove solvency, or enter liquidation.

Common Mistakes to Avoid

Using a statutory demand for a disputed debt If the company has raised legitimate concerns about the work quality, scope, or price, do not use a statutory demand. Courts will set it aside and may order you to pay the company’s legal costs.

Sending a letter of demand with no follow-through If you send a demand and then do nothing when it’s ignored, you’ve just taught the debtor they can ignore you. Always follow through with the next step.

Getting the debt amount wrong Both demands require precise figures. Include the invoice amount, any interest, and any reasonable debt recovery costs. Don’t inflate the figure or include disputed amounts.

Serving the demand incorrectly Letters of demand should be sent by registered post and email. Statutory demands have strict service requirements. Get it wrong and the demand is invalid.

Waiting too long Most Australian states have a six-year limitation period for debt recovery. Don’t wait years to act. The longer you wait, the harder it is to recover.

How ClaimDone Helps

ClaimDone prepares both letters of demand and statutory demands using our Proprietary AI Engine. You complete a short intake form, upload your invoice and any supporting evidence, and we generate the appropriate demand document.

For letters of demand: We draft the letter, calculate any interest owing, and send it automatically to the debtor by registered post and email. Flat fee: $79. Done in 60 minutes.

For statutory demands: We prepare the prescribed form and the supporting affidavit template. You swear the affidavit before a JP or solicitor, then serve it according to the statutory requirements. Flat fee: $197. Prepared in 60 minutes.

Both services are available Australia-wide. No subscription. No hidden fees. No legal advice — just the documents you need to take formal action.

When to Get a Lawyer Instead

Consider engaging a lawyer if:

• The debt is over $50,000
• The debtor is threatening defamation or other counterclaims
• You need to enforce a judgment or wind-up order
• The matter involves complex contractual disputes
• You’re dealing with a sophisticated corporate debtor with in-house legal

For straightforward unpaid invoices under $50,000, ClaimDone gives you the documents you need without the legal fees.

Take Action Now

If a client won’t pay your invoice, start with the right demand document based on the debt size and debtor type.

Under $4,000 or individual debtor? Start with a letter of demand. Over $4,000 and company debtor? Consider a statutory demand. Not sure? Start with a letter of demand — you can always escalate.

Get your letter of demand prepared and sent automatically through ClaimDone. Upload your invoice, complete the intake form, and we’ll handle the rest. Flat fee: $79. No legal jargon. No wasted time.

Frequently Asked Questions

Can I send a statutory demand to a sole trader?

No. Statutory demands under the Corporations Act only work against registered companies (Pty Ltd or Ltd entities). For sole traders, partnerships, or individuals, use a letter of demand instead.

What if my client disputes the invoice after I send a demand?

If they raise a genuine dispute about the work quality, scope, or price, you may need to resolve that dispute through tribunal or court proceedings. Do not proceed with a statutory demand if there’s a legitimate dispute — courts will set it aside.

How long should I give them to pay in a letter of demand?

Most letters of demand give 7-14 days. Shorter deadlines (3-7 days) are appropriate for urgent matters or repeat offenders. Longer deadlines (14-21 days) are appropriate for larger amounts or first-time disputes.

Can I include interest in my demand?

Yes, if your contract or terms and conditions include an interest clause, or if you’re claiming under penalty interest provisions in your state. Calculate the interest correctly and show your working in the demand.

What happens if they ignore my statutory demand?

After 21 days, if the company hasn’t paid or applied to set aside the demand, you can file a wind-up application. The company is presumed to be insolvent and must either pay, prove solvency, or enter liquidation.