Subcontractor Didn’t Pay You: Letter of Demand or Statutory Demand First?

You finished the job. Invoice sent. Weeks pass. No payment. The subcontractor or head contractor who hired you has gone quiet, and you need your money.

Before you chase harder, check one critical thing: are they operating as a sole trader, partnership, or registered company? That single fact determines your entire escalation strategy.

Why Business Structure Matters

Australian debt recovery law treats individuals and companies differently.

Sole traders and partnerships are individuals. They can ignore letters and delay payment without immediate legal consequence. Your escalation path is a tribunal claim or court action — both require filing, waiting, and potentially attending a hearing.

Registered companies face a different tool: the statutory demand. If a company owes you $4,000 or more and you serve a valid statutory demand, they have 21 days to pay or face presumed insolvency. That presumption opens the door to wind-up proceedings. Most companies pay rather than risk that outcome.

Check the business structure before you decide which demand to send.

How to Check If They’re a Company

Go to the ASIC register: https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx

Search the business name or ABN. If the entity shows as:

• Pty Ltd or Ltd — it’s a registered company
• Sole Trader or Partnership — it’s an individual or individuals
• Trust — the trustee may be a company or individual (check the trustee entity separately)

If you see an ACN (Australian Company Number), you’re dealing with a company. If you only see an ABN and a person’s name, it’s typically a sole trader.

Do not guess. Sending a statutory demand to a sole trader is meaningless. Sending a letter of demand to a company when you could use a statutory demand wastes time.

Strategy 1: They’re a Sole Trader or Partnership

If the non-payer is an individual operating as a sole trader or partnership, your path is:

1. Letter of demand — formal written demand citing the contract, invoice, and applicable law
2. Final demand — if no response within 7-14 days, send a final notice stating tribunal or court action will follow
3. Tribunal application — file in your state’s small claims tribunal (VCAT, NCAT, QCAT, etc.) if the debt is under the tribunal’s monetary limit (typically $10,000-$25,000 depending on state)

Individuals can’t be wound up. There’s no statutory demand mechanism. The letter of demand establishes your position, gives them a chance to pay, and creates a paper trail for the tribunal. Most sole traders pay after a properly drafted letter — they know you’re serious and don’t want a tribunal judgment against them.

If they ignore both letters, the tribunal is your next step. You’ll need evidence: the contract or agreement (even if verbal, describe it), invoices, proof of work completed, correspondence showing non-payment.

ClaimDone generates the letter of demand for $79 — citing relevant law, attaching your evidence, and delivering it automatically via email and registered post. If they still don’t pay, you can escalate to a tribunal application, which ClaimDone also prepares.

Strategy 2: They’re a Registered Company (Debt Under $4,000)

If the company owes you less than $4,000, you cannot use a statutory demand. The Corporations Act sets a $4,000 minimum threshold.

Your path is the same as for sole traders:

1. Letter of demand — formal demand citing the debt, contract, and applicable law
2. Final demand — escalation notice if no payment within 7-14 days
3. Tribunal application — file in the relevant state tribunal

Even though it’s a company, the statutory demand tool is not available to you. Stick to the letter-tribunal path.

Strategy 3: They’re a Registered Company (Debt $4,000 or More)

If the company owes you $4,000 or more, you have access to the most powerful debt recovery tool in Australian law: the statutory demand.

Your path:

1. Letter of demand first — still send this. It’s cheaper ($79 vs $197 for a statutory demand), faster, and often enough. Many companies pay immediately when they see you’re organised and serious.
2. If no payment within 7-14 days, serve a statutory demand — this gives the company 21 days to pay or apply to set aside the demand.
3. If they don’t pay or set aside within 21 days — the company is presumed insolvent. You can then apply to wind up the company. Most companies pay before this point.

Why send the letter first?

Because it’s faster and cheaper. If the company pays after the letter, you’ve saved time and the cost of preparing the statutory demand. If they ignore the letter, you escalate to the statutory demand with clear evidence that you tried to resolve it first.

Do not skip the letter and go straight to the statutory demand unless:

• The debt is very large (over $20,000)
• The company is clearly insolvent and you want maximum pressure immediately
• You’ve already sent multiple invoices and reminders with no response

For most subcontractor debts between $4,000 and $20,000, the letter-then-statutory-demand sequence is the most efficient path.

What If the Debt Is Disputed?

If the company (or sole trader) genuinely disputes the debt — they claim the work was defective, incomplete, or not as agreed — do not use a statutory demand.

Statutory demands are only for undisputed debts. If the company applies to set aside the demand on the basis of a genuine dispute, a court will likely set it aside, and you’ll have wasted time and money.

Instead:

• Send a letter of demand addressing the dispute — explain why the work was completed as agreed, attach evidence (photos, emails, signed scope), and demand payment
• If they still refuse, file a tribunal or court claim where the dispute can be heard and determined

Disputed debts require adjudication. Statutory demands do not adjudicate — they presume the debt is owed and force the company to pay or face wind-up.

What If They’re a Trust?

Many construction businesses operate through a family trust or unit trust. The trust itself is not a legal entity — the trustee is the entity you pursue.

Check who the trustee is:

• If the trustee is a company (common structure: “XYZ Pty Ltd as trustee for ABC Family Trust”), treat it as a company — letter of demand, then statutory demand if over $4,000
• If the trustee is an individual, treat it as a sole trader — letter of demand, then tribunal

The trust structure does not change your strategy. Focus on the trustee entity.

Final Checklist: Which Demand to Send First

Send a letter of demand if:

• The debtor is a sole trader or partnership (any amount)
• The debtor is a company owing under $4,000
• The debt is disputed and you need to establish your position first
• You want the fastest, cheapest first step before escalating

Send a statutory demand if:

• The debtor is a registered company
• The debt is $4,000 or more
• The debt is undisputed (or any dispute is clearly spurious)
• You’ve already sent a letter of demand with no response

Go straight to tribunal if:

• You’ve sent both demands with no payment
• The debtor is a sole trader and ignoring all contact
• The debt is under the tribunal’s monetary limit and you have strong evidence

Most subcontractor payment disputes resolve after a properly drafted letter of demand. The debtor realises you’re organised, you have evidence, and you’re willing to escalate. They pay.

If they don’t, you escalate based on their business structure. Companies get the statutory demand. Sole traders get the tribunal application.

How ClaimDone Helps Tradies Recover Unpaid Subcontractor Debts

ClaimDone’s Proprietary AI Engine reads your evidence — invoices, contracts, emails, photos of completed work — and generates the right demand document citing applicable Australian law.

For sole traders and companies owing under $4,000:

• Letter of demand service — $79 flat fee, drafted and delivered in 60 minutes
• If ignored, escalate to a tribunal application prepared by ClaimDone

For companies owing $4,000 or more:

• Start with the letter of demand — $79, fast, often enough
• If no payment, escalate to a statutory demand — $197, includes Form 509H and affidavit template

No subscription. No hourly billing. Upload your evidence, answer a few questions, and ClaimDone handles the drafting and delivery. Know the structure. Choose the right tool. Get paid.

Frequently Asked Questions

Can I send a statutory demand to a sole trader subcontractor?

No. Statutory demands only apply to registered companies. If the subcontractor is a sole trader, send a letter of demand followed by a tribunal application if they don’t pay.

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

If the company applies to set aside the statutory demand on the basis of a genuine dispute, the court will likely set it aside. Only use statutory demands for undisputed debts. If there’s a real dispute, resolve it through a tribunal or court claim.

How long does a company have to respond to a statutory demand?

21 days from the date of service. The company must either pay the debt in full, apply to set aside the demand, or face a presumption of insolvency.

Should I send a letter of demand before a statutory demand even if the debt is over $4,000?

Yes, in most cases. The letter of demand is faster and cheaper ($79 vs $197), and many companies pay immediately. If they ignore it, you escalate to the statutory demand with clear evidence you tried to resolve it first.

What if the head contractor is a trust — who do I pursue?

Pursue the trustee. Check the trust deed or ASIC register to identify the trustee entity. If the trustee is a company, treat it as a company (letter then statutory demand if over $4,000). If the trustee is an individual, treat it as a sole trader (letter then tribunal).