Unpaid Contractor Invoice: Letter of Demand or Statutory Demand?

You finished the job. You sent the invoice. The payment date came and went. Now you’re chasing an unpaid contractor invoice while your own bills pile up.

Australian law gives you clear tools to recover what you’re owed. The confusion: which demand letter to use? Send the wrong one and you’ve wasted time and money.

The Two Demand Types Explained

Letter of Demand

A letter of demand is a formal written notice requiring payment of a debt. It works against any debtor — individuals, sole traders, partnerships, trusts, or companies. There is no minimum debt amount. The letter sets a deadline (typically 7-14 days) and warns of further action if the debt remains unpaid.

Key features:

• Works for debts of any size
• Can be sent to individuals or companies
• Usually precedes tribunal or court action
• No prescribed form required
• $79 through ClaimDone

Statutory Demand

A statutory demand is a specific legal notice under the Corporations Act. It can only be served on a registered company (Pty Ltd or Ltd). The debt must be at least $4,000. The company has exactly 21 days to pay, apply to set aside the demand, or face presumed insolvency and potential wind-up proceedings.

Key features:

• Minimum debt: $4,000
• Company debtors only (check ASIC register)
• Must use prescribed form with supporting affidavit
• Creates presumption of insolvency if ignored
• Most powerful debt recovery tool available
• $197 through ClaimDone

Decision Tree: Which Demand Should You Use?

Step 1: Check the Debtor Type

Look up the business on the ASIC register. If the business name ends in Pty Ltd or Ltd and has an ACN, it’s a company. If you’re dealing with a sole trader, partnership, or individual trading under a business name, they are not a company.

• Company debtor + debt $4,000 or more → Statutory demand available (and usually the better choice)
• Company debtor + debt under $4,000 → Letter of demand only
• Individual, sole trader, or partnership → Letter of demand only

Step 2: Consider the Debt Amount

Debt under $4,000: You must use a letter of demand regardless of debtor type.

Debt $4,000 or more owed by a company: You can choose either option, but a statutory demand is significantly more powerful. Most companies pay within the 21-day period to avoid the insolvency stigma and director liability risks.

Debt $4,000 or more owed by an individual: Letter of demand, followed by tribunal or court proceedings if necessary. You cannot use a statutory demand against a person.

Step 3: Check for Genuine Dispute

Statutory demands only work for undisputed debts. If the company has a genuine dispute about the work quality, scope, or amount owed, they can apply to set aside the demand.

Ask yourself:

• Did you complete the work as agreed?
• Is the invoice amount clearly calculated and justified?
• Has the company raised any legitimate concerns about the work?
• Do you have clear evidence (contract, emails, photos, timesheets)?

If there’s a real dispute, start with a letter of demand and be prepared to argue your case in a tribunal or court. Using a statutory demand for a disputed debt can backfire — the company may successfully set it aside and you’ll be ordered to pay their legal costs.

Practical Scenarios for Contractors

Scenario 1: $2,800 Owed by a Small Company

You completed electrical work for a cafe (registered company). Invoice is 45 days overdue.

Correct action: Letter of demand. The debt is below the $4,000 statutory demand threshold. Send a formal letter giving 14 days to pay, then file in the relevant state tribunal if ignored.

Scenario 2: $12,000 Owed by a Property Developer (Company)

You completed carpentry work on a residential build. The developer (Pty Ltd company) is refusing to pay the final invoice, claiming minor defects you’ve offered to rectify.

Correct action: Letter of demand first. There’s a dispute on foot. Address the alleged defects in writing, offer to remedy, and demand payment. If they continue to refuse without valid reason, you can escalate to tribunal proceedings. Do not use a statutory demand while a genuine dispute exists.

Scenario 3: $8,500 Owed by a Company, No Dispute

You provided IT consulting services. The company (Pty Ltd) has not raised any issues with your work. They’ve simply stopped responding to emails. Invoice is 60 days overdue.

Correct action: Statutory demand. The debt exceeds $4,000, the debtor is a company, there’s no genuine dispute, and they’re ghosting you. A statutory demand will get their attention immediately. Most companies pay within days of receiving the formal notice.

Scenario 4: $15,000 Owed by an Individual Client

You completed landscaping work for a homeowner. They’re unhappy with one aspect but refuse to discuss it.

Correct action: Letter of demand. You cannot serve a statutory demand on an individual. Send a formal letter addressing their concerns and demanding payment. If they don’t pay, file in your state tribunal (most have jurisdiction up to $25,000-$30,000 for building disputes).

What Happens After You Send Each Type

After a Letter of Demand

If they pay: Matter resolved. Always provide a receipt and consider a settlement deed for larger amounts.

If they ignore it: You proceed to the relevant tribunal or court. For most contracting disputes under $25,000, this means your state civil and administrative tribunal (NCAT, VCAT, QCAT, etc.). You’ll need to file an application, pay a filing fee, and prepare your evidence.

Timeline: Typically 2-4 months from filing to hearing, depending on the tribunal’s workload.

After a Statutory Demand

If they pay: Matter resolved within 21 days.

If they apply to set it aside: The company has 21 days to apply to the Supreme Court to set aside the demand. If they succeed (because there’s a genuine dispute or a defect in the demand), you’re back to square one and may be ordered to pay their costs.

If they ignore it: After 21 days, the company is presumed insolvent. You can then apply to wind up the company. Most companies will pay before it reaches this point.

Timeline: Payment usually occurs within 7-14 days of service. If ignored, wind-up proceedings typically take 2-3 months.

How ClaimDone Helps Contractors Recover Unpaid Invoices

ClaimDone’s Proprietary AI Engine reads your contract, invoice, emails, and other evidence to generate the correct demand letter for your situation.

For letter of demand:

• Complete a 5-minute intake form about the unpaid invoice
• Upload your evidence (contract, invoice, correspondence, proof of work)
• Our system drafts a professionally formatted letter
• We deliver it automatically via email and registered post
• Flat fee: $79

For statutory demand:

• Same simple intake process
• System prepares the prescribed form and a supporting affidavit template
• You swear the affidavit before a JP or solicitor
• You arrange service on the company (we provide detailed instructions)
• Flat fee: $197

Both services are completed within 60 minutes of submitting your evidence. No subscription, no hidden fees, no ongoing costs.

When to Get a Lawyer Instead

ClaimDone handles straightforward unpaid invoice matters. You should engage a qualified Australian lawyer if:

• The debt exceeds $100,000
• The company is already in liquidation or administration
• There are complex contractual disputes about scope or quality
• You’re facing a cross-claim or counterclaim
• The matter involves construction security of payment legislation
• You need to enforce a judgment or wind up a company

For most contracting disputes under $25,000, ClaimDone’s demand letters are sufficient to either recover payment or prepare you for tribunal proceedings.

Final Checklist: Choosing Your Demand Type

Before you act, confirm:

1. Debtor type: Individual/sole trader → letter of demand only. Company → check debt amount.
2. Debt amount: Under $4,000 → letter of demand. $4,000+ (company debtor) → statutory demand available.
3. Dispute status: Genuine dispute exists → letter of demand. No dispute → statutory demand (if company + $4,000+).
4. Evidence quality: Do you have a clear contract, invoice, and proof of work? If not, gather it first.
5. Debt age: Debts over 6 years may be statute-barred. Act promptly.

Get Your Unpaid Contractor Invoice Paid

You did the work. You deserve to be paid. Whether you need a letter of demand or a statutory demand, ClaimDone prepares it in under an hour based on your evidence. Generate your 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 under the Corporations Act only apply to registered companies (Pty Ltd or Ltd). For sole traders, partnerships, or individuals, use a letter of demand followed by tribunal or court proceedings if necessary.

What if the company disputes my invoice after receiving a statutory demand?

If the company has a genuine dispute about the work quality, scope, or amount, they can apply to the Supreme Court within 21 days to set aside the statutory demand. If successful, you may be ordered to pay their legal costs. Only use statutory demands for undisputed debts.

How long should I wait before sending a demand letter for an unpaid invoice?

Most contractors send a demand letter 14-30 days after the invoice due date, depending on payment terms. Send a polite reminder first, then escalate to a formal demand if ignored. The sooner you act, the better your chances of recovery.

Can I use a statutory demand for a $3,500 debt?

No. The minimum debt for a statutory demand is $4,000 under the Corporations Act. For debts under this threshold, use a letter of demand regardless of whether the debtor is a company or individual.

What happens if the company ignores my statutory demand?

After 21 days, the company is presumed insolvent under the Corporations Act. You can then apply to wind up the company through the Supreme Court. Most companies pay within the 21-day period to avoid this outcome.