Letter of Demand vs Statutory Demand: Small Business Guide

When a customer doesn’t pay, small businesses face a choice: chase informally or use a formal demand. Most choose the formal route because it works.

Australia gives you two main demand tools: the letter of demand and the statutory demand. They apply to different debtors, trigger different consequences, and cost different amounts. This guide explains when to use each and how Claim Done prepares both in under an hour.

What is a letter of demand?

A letter of demand is a formal written notice requiring payment by a specified deadline. You can send it to any debtor — individual, sole trader, partnership, or company — for any amount.

The letter sets out:

The amount owed
The basis of the debt (invoice number, contract, loan agreement)
A deadline for payment (typically 7-14 days)
Consequences if the debt remains unpaid (tribunal claim, court proceedings, credit default listing)

A letter of demand does not create a new legal obligation. It reminds the debtor of an existing one and signals your intent to escalate.

When to use it:

The debtor is an individual, sole trader, or partnership
The debt is under $4,000
You want a fast, low-cost first step before tribunal or court
The debtor is a company, but you’re not ready to issue a statutory demand

What is a statutory demand?

A statutory demand is a formal notice under the Corporations Act requiring a registered company to pay a debt of $4,000 or more within 21 days — or face presumed insolvency and potential wind-up proceedings.

It only applies to companies (Pty Ltd or Ltd entities registered with ASIC). You cannot serve a statutory demand on an individual, sole trader, or partnership.

Form and requirements:

Must use the prescribed form (Form 509H)
Must be accompanied by an affidavit verifying the debt, sworn before a Justice of the Peace or solicitor
Debt must be a specific, ascertained sum (not estimated damages)
Debt must be undisputed (if the company has a genuine dispute, the demand may be set aside)

What happens after service:

The company has 21 days to either:

Pay the debt in full
Secure the debt (pay into a trust account or provide a bank guarantee)
Apply to the court to set aside the demand (typically costs $1,735)

If the company does none of these, you can presume it is insolvent and apply to wind it up. Most companies pay rather than risk wind-up proceedings.

When to use it:

The debtor is a registered company (Pty Ltd or Ltd)
The debt is $4,000 or more
The debt is not genuinely disputed
You are prepared to follow through with wind-up proceedings if necessary

When NOT to use it:

The debtor is an individual or sole trader
The debt is under $4,000
The company has a genuine offsetting claim or dispute
You are not prepared to take the next step

Issuing a statutory demand when you know the debt is disputed, or when you have no intention of following through, can result in costs orders against you.

Letter of demand vs statutory demand: side-by-side

When to use a letter of demand

Use a letter of demand when:

The debtor is not a company — individuals, sole traders, and partnerships cannot be served with a statutory demand
The debt is under $4,000 — statutory demands require a minimum $4,000 debt
You want a low-cost first step — a letter of demand costs $97 and often resolves the matter without further action
The debtor is a company, but you want to test their response — some businesses send a letter of demand first, then escalate to a statutory demand if ignored
You plan to file a tribunal claim — tribunals typically require evidence that you attempted to resolve the dispute before filing; a letter of demand satisfies this requirement

Example:

You run a graphic design studio. A client owes $2,800 for a website redesign. The client is a sole trader. You send a letter of demand. The client pays within 10 days. Total cost: $97.

When to use a statutory demand

Use a statutory demand when:

The debtor is a registered company — check the ASIC register to confirm
The debt is $4,000 or more — the statutory threshold
The debt is not disputed — the company has not raised a genuine offsetting claim or defence
You are prepared to follow through — if the company ignores the demand, you must be ready to apply for wind-up

Example:

You supply commercial cleaning services to an office building. The property management company (a Pty Ltd) owes $8,500 for three months of unpaid invoices. You send a letter of demand. No response. You prepare a statutory demand and serve it on the company’s registered office. The company pays in full within 14 days. Total cost: $197.

What if the debtor is a company and the debt is under $4,000?

You cannot use a statutory demand. Your options:

Letter of demand — send a formal demand citing the contract or applicable law
Small claims tribunal — file a claim in VCAT, NCAT, QCAT, or the equivalent tribunal in your state (jurisdictional limits range from $10,000 to $25,000)
Magistrates Court — for debts above the tribunal limit

Most small businesses start with a letter of demand. If the company ignores it, they file a tribunal claim.

What if the debtor is an individual and the debt is over $4,000?

You cannot use a statutory demand. Your options:

Letter of demand — send a formal demand citing the legal basis for the debt
Tribunal or court claim — file in the appropriate forum based on the debt size

Statutory demands only apply to companies. Individuals face different enforcement mechanisms (judgment debt, garnishee orders, bankruptcy notices).

Common mistakes small businesses make

Using a statutory demand on an individual — it has no legal effect and wastes $197.

Using a statutory demand for a disputed debt — the company will apply to set it aside, and you may face a costs order.

Sending a letter of demand with no follow-through — if you never file a tribunal claim or take further action, the debtor learns to ignore you.

Waiting too long — limitation periods apply to debt recovery. After the limitation period expires, the debt may be unenforceable in court.

Not checking the company register — the debtor may have deregistered the company or changed its name. Always check the ASIC register before serving a statutory demand.

What happens after you send the demand

Letter of demand:

Most debtors pay within 7-14 days
Some negotiate a payment plan
Some ignore it — in which case you file a tribunal or court claim
Some dispute the debt — in which case you assess the dispute and decide whether to proceed

Statutory demand:

Most companies pay within 21 days
Some apply to set aside the demand (costs them around $1,735)
Some ignore it — in which case you can presume insolvency and apply to wind up the company
Some negotiate a payment plan — you can agree to withdraw the demand in exchange for secured payments

How Claim Done prepares both demands

Letter of demand ($97):

Complete a 5-minute intake form about the debt
Upload supporting evidence (invoices, contracts, emails, photos)
ClaimDone’s Proprietary AI Engine drafts a professionally formatted letter
The letter is delivered automatically to the debtor via email and registered post
You receive a copy and a delivery confirmation report

Statutory demand ($197):

Complete a 10-minute intake form about the debt and the company debtor
Upload supporting evidence (invoices, contracts, payment records)
ClaimDone prepares Form 509H and a supporting affidavit template
You take the affidavit to a Justice of the Peace or solicitor to swear it
You serve the demand on the company’s registered office (by hand or registered post)
ClaimDone provides a service checklist and follow-up guide

Both services deliver in under 60 minutes. No subscription. Flat fee. Australia-wide.

Start your debt recovery with ClaimDone

For debts under $4,000 or debts owed by individuals, use ClaimDone’s letter of demand service. Upload your evidence, answer a few questions, and receive a professionally drafted demand letter delivered automatically to the debtor. $79 flat fee.

For debts over $4,000 owed by a company, use ClaimDone’s statutory demand service. We prepare Form 509H and the supporting affidavit template based on your evidence. You swear the affidavit and serve it on the company. $79 flat fee.

Both services cite the applicable Australian law, format the documents to professional standards, and deliver in under an hour. No subscription. No hidden fees. Just fast, reliable debt recovery documents prepared by ClaimDone’s Proprietary AI Engine.

Get started with a letter of demand or prepare a statutory demand now.

Frequently Asked Questions

Can I send a statutory demand to a sole trader?

No. Statutory demands only apply to registered companies (Pty Ltd or Ltd). For sole traders, use a letter of demand and, if necessary, file a tribunal or court claim.

What if the company disputes the debt after I serve a statutory demand?

The company can apply to the court to set aside the demand within 21 days. If they have a genuine dispute, the court may set it aside and order you to pay their costs. Only use a statutory demand for undisputed debts.

How long does a debtor have to respond to a letter of demand?

You set the deadline — typically 7 to 14 days. The debtor is not legally required to respond, but ignoring a letter of demand strengthens your case if you file a tribunal or court claim.

Can I use a statutory demand for a debt under $4,000?

No. The minimum debt for a statutory demand is $4,000. For smaller debts owed by a company, use a letter of demand or file a tribunal claim.

What happens if the company ignores my statutory demand?

After 21 days, you can presume the company is insolvent and apply to the court to wind it up. Most companies pay rather than risk wind-up proceedings, but you must be prepared to follow through if they call your bluff.

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