A client owes you money and won’t respond to your emails. Should you send a letter of demand first, or go straight to a statutory demand under the Corporations Act? The wrong choice wastes time, money, and leverage.
What is a letter of demand?
A letter of demand is a formal written notice stating that payment is overdue and must be made by a specific deadline. It sets out the amount owed, the basis of the debt (usually an invoice or contract), and the consequences of non-payment.
Key features:
- Works against individuals, sole traders, partnerships, and companies
- No minimum debt threshold
- Not a court document
- Creates a clear paper trail before legal action
- Can be sent via email, post, or both
A letter of demand is your standard first step for most unpaid invoices. It signals you are serious without triggering insolvency proceedings.
What is a statutory demand?
A statutory demand is a formal notice issued under the Corporations Act demanding payment of a debt exceeding $4,000 within 21 days. If the company fails to pay or dispute the debt within that period, it is presumed insolvent and you can apply to wind up the company.
Key features:
- Only works against registered companies (Pty Ltd or Ltd)
- Minimum debt: $4,000
- Must be served in person (not by email or post)
- Prescribed form required
- Requires a supporting affidavit sworn before a JP or solicitor
- Failure to comply triggers presumption of insolvency
A statutory demand is the most powerful debt recovery tool in Australia, but it comes with strict technical requirements and serious consequences.
When to use a letter of demand
The debtor is not a company Statutory demands only apply to registered companies. If your client is a sole trader, partnership, trust, or individual, a letter of demand is your only option before tribunal or court.
The debt is under $4,000 Statutory demands require a minimum debt of $4,000. Below that threshold, use a letter of demand.
The debt might be genuinely disputed If there is a real argument about whether the work was done, the quality of the work, or the amount owed, a statutory demand is inappropriate. Courts typically set aside statutory demands used to pursue genuinely disputed debts.
You want to preserve the commercial relationship A letter of demand is firm but not nuclear. It gives the client a chance to pay without triggering insolvency proceedings.
You are not ready for wind-up proceedings If you issue a statutory demand and the company does not pay or dispute it, you must be prepared to follow through with a wind-up application. If you are not ready to take that step, do not issue the demand.
When to use a statutory demand
The debtor is a registered company Check the company name on the ASIC register. If it ends in Pty Ltd or Ltd and has an ACN, a statutory demand is available.
The debt exceeds $4,000 This is the minimum threshold. If your invoice is $3,800, you cannot use a statutory demand. If it is $4,200, you can.
The debt is not genuinely disputed The work was done, the invoice was sent, and the company has not raised any legitimate dispute about the amount or quality.
The company is ignoring you You have sent reminders, follow-ups, and a letter of demand. The company is not responding. A statutory demand forces a response within 21 days or the company faces wind-up proceedings.
You are prepared to wind up the company A statutory demand is not a bluff. If the company does not pay or dispute the debt, you must be ready to file a wind-up application in the Federal Court.
The escalation path most businesses should follow
For most unpaid invoices, the correct sequence is:
- Reminder emails — polite follow-ups, 7-14 days after the invoice due date
- Letter of demand — formal notice giving 7-14 days to pay
- Statutory demand (if the debtor is a company and the debt exceeds $4,000) or tribunal application (if not)
Skipping the letter of demand and going straight to a statutory demand is legally permissible, but commercially risky. You lose the chance to resolve the matter without triggering insolvency proceedings. That might be appropriate for a serial non-payer, but not for a client who is simply slow to pay.
What happens after you send a letter of demand
If the debtor pays, the matter is resolved.
If the debtor does not pay and does not respond, you can:
- File a tribunal application (if the debt is under the tribunal limit in your state, typically $10,000-$25,000)
- File a court claim (if the debt exceeds the tribunal limit)
- Issue a statutory demand (if the debtor is a company and the debt exceeds $4,000)
The letter of demand becomes evidence that you attempted to resolve the matter before filing.
What happens after you serve a statutory demand
The company has 21 days from the date of service to either:
- Pay the debt in full
- Apply to the court to set aside the demand
If the company does neither, it is presumed insolvent and you can apply to the Federal Court to wind up the company.
Setting aside the demand A company can apply to set aside a statutory demand if:
- There is a genuine dispute about the debt
- The company has an offsetting claim
- There is a defect in the demand that causes substantial injustice
If the court sets aside the demand, you are back to square one. That is why statutory demands should only be used for undisputed debts.
Common mistakes to avoid
Using a statutory demand for a disputed debt If the company has raised a legitimate dispute about the quality of your work, the scope of the contract, or the amount owed, a statutory demand is inappropriate. The court will set it aside, and you will have wasted time and legal costs.
Serving the demand incorrectly Statutory demands must be served personally on the company at its registered office. Email and post are not sufficient. If service is defective, the demand is invalid.
Issuing a statutory demand when you are not prepared to wind up the company A statutory demand is not a negotiation tactic. If you issue it, you must be prepared to follow through with a wind-up application.
Sending a letter of demand to a company that is already insolvent If the company is in liquidation or administration, a letter of demand is pointless. Check the ASIC register before you escalate.
How Claim Done helps
Letter of demand Claim Done generates a professionally formatted letter of demand and delivers it to the debtor automatically. You complete a 5-minute intake form, upload your invoice and any supporting documents, and the Proprietary AI Engine drafts the letter. Flat fee, $97, done in 60 minutes. Generate a letter of demand automatically.
Statutory demand Claim Done prepares the prescribed form and supporting affidavit template for $197. You provide the debt details, company information, and evidence. The system generates the form and affidavit ready for you to swear before a JP or solicitor and serve on the company. Prepare a statutory demand under the Corporations Act.
Both services are fixed-fee, no subscription, Australia-wide.
Final word
If your client is a company and owes you more than $4,000, a statutory demand is the most powerful tool available. But it is not always the right first step. For most unpaid invoices, start with a letter of demand. If that fails and the debt meets the statutory demand criteria, escalate.
Choose the right tool for the situation. If you are not sure, start with the letter. Claim Done can help you generate either document in under an hour, at a flat fee, with no legal jargon or guesswork.
Frequently Asked Questions
Can I send a statutory demand by email?
No. Statutory demands must be served personally on the company at its registered office. Email, post, and courier are not sufficient under the Corporations Act. If service is defective, the demand is invalid.
What if the company disputes the debt after I serve the statutory demand?
The company has 21 days to apply to the court to set aside the demand. If the court finds there is a genuine dispute, the demand will be set aside and you will need to pursue the debt through tribunal or court proceedings.
Can I use a statutory demand for a debt under $4,000?
No. The minimum debt threshold for a statutory demand is $4,000 under the Corporations Act. If your debt is below that amount, use a letter of demand and, if necessary, file a tribunal application.
Do I need a lawyer to issue a statutory demand?
No, but you must follow the strict technical requirements. Claim Done prepares the prescribed form and supporting affidavit template for $197. You then need to swear the affidavit before a JP or solicitor and arrange personal service on the company.
What happens if the company ignores my letter of demand?
If the company does not respond to your letter of demand, you can escalate to a statutory demand (if the company owes $4,000 or more) or file a tribunal application. The letter of demand becomes evidence that you attempted to resolve the matter before taking legal action.
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