Subcontractor Hasn’t Paid You: Letter of Demand or Statutory Demand?

You finished the job. The subcontractor approved the work. The invoice is overdue. And now they’re ignoring your calls.

When a subcontractor won’t pay in Australia, you have two debt recovery tools: a letter of demand and a statutory demand. They work differently, apply to different situations, and have very different consequences. This guide shows exactly which demand to use based on debt size, company structure, and urgency.

The Two Demand Options: What They Are

Letter of Demand

A letter of demand is a formal written notice stating that the debtor owes you money and must pay by a specific date. It cites the contract, relevant consumer protection law where applicable, and the consequences of non-payment.

Key features:

• Works against individuals, sole traders, partnerships, and companies
• No minimum debt amount
• Delivered by email, registered post, or both
• Sets a 7–14 day payment deadline
• Precursor to tribunal or court proceedings
• Costs $79 with ClaimDone (drafted and sent automatically)

Statutory Demand

A statutory demand is a formal demand served on a registered company under the Corporations Act. It gives the company 21 days to pay or face winding-up proceedings (liquidation).

Key features:

• Only works against registered companies (Pty Ltd or Ltd)
• Minimum debt: $4,000
• Must be undisputed
• Uses prescribed Form 509H plus supporting affidavit
• If unpaid after 21 days, the company is presumed insolvent
• Opens the door to wind-up proceedings
• Costs $197 with ClaimDone (Form 509H and affidavit template prepared)

When to Use a Letter of Demand

The debt is under $4,000 Statutory demands require a minimum $4,000 debt. Anything below that threshold needs a letter of demand followed by tribunal action if necessary.

The debtor is not a registered company Sole traders, partnerships, and individuals cannot be served with a statutory demand. A letter of demand is the only formal demand option.

You want to preserve the business relationship A letter of demand is firm but not nuclear. It signals you’re serious without threatening liquidation. Many subcontractors pay immediately once they receive a properly drafted demand.

The debt is disputed If the subcontractor genuinely disputes the amount or quality of work, a statutory demand is inappropriate and can be set aside. A letter of demand sets out your position clearly and invites resolution.

You’re heading to a tribunal Most state tribunals require evidence that you attempted to resolve the dispute before filing. A letter of demand satisfies that requirement and strengthens your case.

When to Use a Statutory Demand

The debt is $4,000 or more This is the statutory minimum. If you’re owed $3,999, you cannot use this tool.

The debtor is a registered company Check the ASIC register. If the subcontractor operates as “ABC Constructions Pty Ltd,” they can be served. If they’re “John Smith trading as ABC Constructions,” they cannot.

The debt is undisputed The amount must be a specific sum and not genuinely in dispute. If the subcontractor has raised legitimate concerns about defects or scope, a statutory demand will likely be set aside.

You want maximum pressure A statutory demand is the most powerful debt recovery tool in Australia. It gives the company 21 days to pay, apply to set aside the demand, or face a presumption of insolvency. Most companies pay immediately rather than risk wind-up proceedings.

You’re prepared to follow through If the company doesn’t pay and doesn’t apply to set aside the demand, you can file for winding up. That costs additional legal fees and court filing fees. Don’t serve a statutory demand unless you’re prepared to escalate.

Decision Flowchart

Start here: Is the debtor a registered company (Pty Ltd or Ltd)?

• No → Use a letter of demand
• Yes → Continue

Is the debt $4,000 or more?

• No → Use a letter of demand
• Yes → Continue

Is the debt undisputed?

• No → Use a letter of demand (and prepare to defend your position)
• Yes → Continue

Do you want maximum pressure and are you prepared to follow through with wind-up proceedings if necessary?

• No → Use a letter of demand first
• Yes → Use a statutory demand

What Happens After You Send Each Demand

After a Letter of Demand

Most subcontractors pay within the deadline once they realise you’re serious. If they don’t, you can negotiate a payment plan, file a tribunal application for debts within your state’s tribunal cap, or file a court claim for larger debts. The letter of demand becomes evidence in your tribunal or court file.

After a Statutory Demand

The company has three options:

1. Pay the debt — most do, immediately
2. Apply to set aside the demand — they have 21 days to file an application in the Supreme Court arguing the debt is disputed or defective service occurred
3. Do nothing — after 21 days, the company is presumed insolvent and you can file for winding up

If the company applies to set aside, you’ll need to defend the demand in court. If they do nothing, you hold a powerful card: the presumption of insolvency opens the door to liquidation proceedings.

Common Mistakes Tradies Make

Serving a statutory demand on a sole trader Statutory demands only work against registered companies. If the subcontractor is a sole trader or partnership, the demand is invalid.

Using a statutory demand for a disputed debt If the subcontractor has raised legitimate concerns about defects, variations, or scope, the debt is disputed. A statutory demand will be set aside and you’ll waste time and money.

Sending a letter of demand with no follow-through A demand without action is just noise. If the debtor ignores your letter, you must be prepared to file a tribunal application or court claim.

Not checking the ASIC register Always verify the company’s registered name and ACN before serving a statutory demand. Incorrect details mean invalid service.

Threatening wind-up without understanding the cost Winding up a company typically costs thousands in legal and court fees. Don’t threaten it unless you’re genuinely prepared to follow through or the debt justifies the expense.

How ClaimDone Helps

ClaimDone prepares both tools at a flat fee.

Letter of Demand — $79 Complete a 5-minute intake form. Our Proprietary AI Engine reads your evidence (invoices, contracts, emails, photos) and drafts a professionally formatted letter. We deliver it automatically via email and registered post.

Statutory Demand — $197 Complete a detailed intake form. We prepare Form 509H and a supporting affidavit template ready for you to swear before a JP or solicitor. You handle service or instruct a process server.

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

If the debt involves complex defects, variations, or genuine disputes, consider instructing a lawyer. ClaimDone generates legal-style documents but does not provide legal advice.

Final Checklist: Which Demand to Use

• Debt under $4,000? → Letter of demand
• Debtor is a sole trader or individual? → Letter of demand
• Debt is disputed or involves defects? → Letter of demand
• Want to preserve the relationship? → Letter of demand
• Debt is $4,000+, debtor is a registered company, debt is undisputed, and you want maximum pressure? → Statutory demand

Most tradies and contractors start with a letter of demand. It’s faster, cheaper, and works in most cases. Reserve the statutory demand for larger debts against companies that are clearly stalling.

Get Your Demand Prepared Now

The longer you delay, the harder it becomes to recover the debt. If a subcontractor won’t pay, start with the right tool.

For debts under $4,000 or against sole traders, ClaimDone prepares and sends a letter of demand for $79 in under 60 minutes. For debts over $4,000 against a registered company, we prepare Form 509H and the supporting affidavit for $197. Choose the right tool, apply the right pressure, and get paid.

Start your letter of demand now at https://claimdone.com.au/services/letter-of-demand/ or prepare a statutory demand at https://claimdone.com.au/services/statutory-demand/.

Frequently Asked Questions

Can I serve a statutory demand on a sole trader subcontractor?

No. Statutory demands under the Corporations Act only apply to registered companies (Pty Ltd or Ltd). Sole traders and partnerships must be pursued with a letter of demand followed by tribunal or court action if necessary.

What happens if the subcontractor ignores my letter of demand?

If they don’t pay or respond within the deadline, you can file a tribunal application (for debts up to the tribunal cap in your state) or a court claim. The letter of demand becomes evidence that you attempted to resolve the dispute before escalating.

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

21 days from the date of service. They can pay the debt, apply to set aside the demand in the Supreme Court, or do nothing. If they do nothing, the company is presumed insolvent and you can file for winding up.

Can I use a statutory demand if the subcontractor disputes the quality of my work?

No. Statutory demands are only appropriate for undisputed debts. If the subcontractor has raised genuine concerns about defects or variations, the debt is disputed and a statutory demand will likely be set aside. Use a letter of demand and prepare to defend your position in tribunal or court.

How much does it cost to prepare a statutory demand with ClaimDone?

ClaimDone prepares Form 509H and the supporting affidavit template for $197. You handle service or instruct a process server. If the company doesn’t pay and you proceed to wind-up, additional legal and court fees apply.