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

You finished the job. The subcontractor hasn’t paid. The answer depends on two things: how much they owe you, and whether they operate as a company or a sole trader.

The two debt recovery tools

Letter of demand — a formal written demand for payment citing the contract, the work completed, and the applicable law. Can be sent to anyone (company, sole trader, individual). No minimum debt amount. Fast, cheap, and effective for most debts.

Statutory demand — a prescribed legal notice under the Corporations Act. Can only be served on a registered company. Requires a minimum debt of $4,000. Gives the company 21 days to pay or face wind-up proceedings.

Decision tree: which one to use

If the debt is under $4,000

Use a letter of demand, regardless of whether the debtor is a company or sole trader.

Statutory demands require a minimum debt of $4,000. Below that threshold, a letter of demand is your only formal option before taking the matter to your state tribunal.

If the debt is $4,000 or more and the debtor is a sole trader

Use a letter of demand.

Statutory demands can only be served on companies registered with ASIC. If the subcontractor operates under their own name or as a partnership, a letter of demand is the correct tool.

If the debt is $4,000 or more and the debtor is a registered company

You have a choice. Here’s how to decide:

Use a letter of demand if:

• The company is still trading and likely to pay with a formal push
• You want to preserve the business relationship
• The debt is straightforward and undisputed
• You want the fastest, cheapest option first

Use a statutory demand if:

• The company has ignored previous demands or correspondence
• You suspect the company is insolvent or close to it
• You want maximum legal pressure (21 days to pay or face wind-up)
• The debt is liquidated (a specific, ascertained amount)
• You are prepared to follow through with wind-up proceedings if they don’t pay

Most sole traders and small businesses start with a letter of demand. If that fails, and the debtor is a company, escalate to a statutory demand.

How to check if the debtor is a company

Go to the ASIC register at abr.business.gov.au and search the business name or ABN.

If the entity type shows “Australian Proprietary Company” (Pty Ltd) or “Australian Public Company” (Ltd), it is a registered company. You can serve a statutory demand.

If it shows “Individual/Sole Trader” or “Partnership”, it is not a company. Use a letter of demand.

What a letter of demand must include

A proper letter of demand for unpaid subcontractor work includes:

• Your details — name, ABN, address, contact details
• Debtor’s details — name, ABN, registered address
• Description of work — what you did, when, and under what agreement
• Invoice details — invoice number, date, amount, payment terms
• Amount owed — the exact figure, including any interest or late fees if your contract allows
• Legal basis — reference to the contract or applicable debt recovery principles
• Demand for payment — clear statement demanding payment within a specified timeframe (typically 7-14 days)
• Consequences of non-payment — tribunal proceedings, court action, or (if applicable) statutory demand

The letter should be professional, direct, and factual. Do not threaten criminal charges (debt is a civil matter). Do not exaggerate consequences.

What a statutory demand must include

A statutory demand is a prescribed form under the Corporations Act. It must include:

• Form 509H — the exact form set out in the Corporations Regulations
• Debt amount — minimum $4,000, must be a liquidated sum
• Debtor details — the company’s full registered name and ACN
• Creditor details — your name and address
• Description of the debt — what it relates to, when it arose
• Demand for payment — within 21 days from service
• Supporting affidavit — sworn statement verifying the debt, signed before a JP or solicitor

Statutory demands are technical. Get the form wrong and the company can apply to set it aside. Follow the prescribed format exactly.

How to serve the documents

Letter of demand:

• Email (if you have a valid email address)
• Registered post to the debtor’s last known address
• Hand delivery (get a signed acknowledgment if possible)

Statutory demand:

• Must be served in accordance with the Corporations Act
• Typically by registered post to the company’s registered office (check ASIC register)
• Can also be served by hand delivery or by leaving it at the registered office
• Service is complete when the document is delivered, not when it is received

For statutory demands, keep proof of service. You will need it if you proceed to wind-up proceedings.

What happens after you send it

Letter of demand:

• Most debtors pay within 7-14 days if they intend to pay at all
• If they dispute the debt, they may send a response outlining their reasons
• If they ignore it, you can file a tribunal application (for debts typically under $10,000-$25,000 depending on the state) or a court claim (for larger debts)

Statutory demand:

• The company has 21 days to pay the debt in full
• If they do not pay, they are presumed insolvent under the Corporations Act
• You can then apply to wind up the company (a serious legal proceeding)
• The company can apply to set aside the demand within 21 days if they have grounds (genuine dispute, offsetting claim, defect in the demand)

Statutory demands are high-stakes. Do not serve one unless you are prepared to follow through.

Common mistakes to avoid

Using a statutory demand when the debt is disputed — if the debtor has a genuine dispute about the amount or whether the debt is owed, the statutory demand can be set aside. Resolve disputes first, then demand.

Serving a statutory demand on a sole trader — it will have no legal effect. Check the ASIC register before you start.

Threatening criminal charges in a letter of demand — debt is a civil matter. Threatening police involvement or criminal prosecution is inappropriate and may undermine your credibility.

Not keeping proof of service — always keep copies of emails, tracking numbers, signed receipts. You will need them if the matter goes to tribunal or court.

Sending a vague or emotional demand — state the facts, cite the contract, specify the amount, set a deadline.

When to escalate to tribunal or court

If the debtor ignores your letter of demand, your next step depends on the debt size and the state you are in:

• Under $10,000 (most states) — file in your state civil and administrative tribunal
• $10,000-$25,000 (varies by state) — tribunal or Magistrates Court
• Over $25,000 — District or Supreme Court (or Federal Court for cross-border disputes)

Tribunal proceedings are designed for self-represented litigants. Court proceedings are more formal and typically require legal representation.

If you served a statutory demand and the company did not pay or apply to set it aside, you can apply to wind up the company. This is a Federal Court proceeding and typically requires a lawyer.

How ClaimDone helps

ClaimDone generates both letters of demand and statutory demands based on the evidence you upload.

For a letter of demand, you complete a 5-minute intake form, upload your invoices and contract, and our Proprietary AI Engine drafts a professionally formatted letter citing the applicable law. We deliver it to the debtor automatically. Flat fee, $79. Done in 60 minutes.

For a statutory demand, you provide the debt details and supporting documents, and we prepare Form 509H and the supporting affidavit template ready for you to swear and serve. Flat fee, $197. Prepared in 60 minutes.

No subscription. No hourly billing. Australia-wide.

Final word

Start with a letter of demand unless you have a strong reason to go straight to a statutory demand. Most subcontractors will pay when they receive a formal, legally precise demand. If they don’t, you have a clear record and can escalate to tribunal or (if they are a company and the debt is over $4,000) a statutory demand.

Get your demand letter now

If a subcontractor hasn’t paid you, don’t wait. A formal demand letter is the fastest way to get paid without going to court.

ClaimDone’s Proprietary AI Engine drafts your letter of demand in 60 minutes, citing the applicable Australian law and delivering it automatically. Flat fee, $79. No subscription.

Generate your letter of demand in 60 minutes at ClaimDone and get your money back.

Frequently Asked Questions

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

No. Statutory demands under the Corporations Act can only be served on registered companies (Pty Ltd or Ltd). If the subcontractor is a sole trader or partnership, use a letter of demand instead.

What is the minimum debt amount for a statutory demand?

The minimum debt is $4,000. This threshold is set under the Corporations Act. If the debt is less than $4,000, use a letter of demand or file a tribunal claim.

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

Most letters of demand give the debtor 7-14 days to pay. There is no statutory timeframe for a standard letter of demand, but 7-14 days is considered reasonable and commercially standard in Australia.

What happens if the subcontractor ignores my letter of demand?

If they ignore the letter, you can file a claim in your state tribunal (for debts typically under $10,000-$25,000 depending on the state) or escalate to a statutory demand if the debtor is a company and the debt is over $4,000. Keep proof of service of the demand for your tribunal or court application.

Can I include interest and late fees in my demand?

Yes, if your contract or invoice terms allow for interest or late fees. Cite the specific clause in your demand. If there is no contractual provision, you may be entitled to interest under relevant state penalty interest legislation, but this varies by state.