Unpaid Contractor Invoice: Letter of Demand or Statutory Demand?

You finished the job. You sent the invoice. The company has gone silent.

Unpaid invoices kill cash flow. When the debtor is a registered company, you have two legal tools: a letter of demand and a statutory demand. Both work, but one might be overkill and the other too soft.

What is a letter of demand?

A letter of demand is a formal written notice that states the amount owed, cites the legal basis for the debt, gives the debtor a deadline to pay (typically 7–14 days), and warns of further action if payment is not made.

Letters of demand work against individuals and companies. They are fast, low-cost, and often trigger payment without further escalation.

When a letter of demand works best:

The debt is under $4,000
The debtor is an individual or sole trader
You want to preserve the business relationship
The company is responsive but slow to pay
You are not ready to threaten wind-up proceedings

A letter of demand does not carry the same weight as a statutory demand, but it signals you are serious. Many companies pay immediately to avoid tribunal proceedings or reputational damage.

What is a statutory demand?

A statutory demand is a formal notice issued under the Corporations Act. It applies only to registered companies (Pty Ltd or Ltd).

A statutory demand requires a minimum debt of $4,000, gives the company 21 days to pay or apply to set it aside, and if ignored, allows you to apply to wind up the company.

This is not a polite request. A statutory demand tells the company: pay now, or we start insolvency proceedings.

When a statutory demand works best:

The debt is $4,000 or more
The debtor is a registered company (check the ASIC register)
Previous demands have been ignored
You are prepared to escalate to wind-up proceedings if necessary
The debt is undisputed and liquidated (a fixed, certain amount)

Statutory demands are powerful because they shift the burden. The company must either pay or apply to the court to set aside the demand. Most companies pay rather than face the cost and embarrassment of insolvency proceedings.

Key differences: letter of demand vs statutory demand

When to start with a letter of demand

If your unpaid contractor invoice is under $4,000, a statutory demand is not an option. You must use a letter of demand.

Even if the debt exceeds $4,000, a letter of demand is often the smarter first step:

Lower cost. A letter of demand costs $97 through Claim Done. A statutory demand costs $197 and requires an affidavit.

Less aggressive. If you want to maintain a working relationship, a letter of demand gives the company a chance to pay without the threat of insolvency.

Faster turnaround. Letters of demand can be drafted and sent within 60 minutes. Statutory demands require more formality and must be personally served.

Flexibility. You can adjust the payment deadline in a letter of demand. A statutory demand is fixed at 21 days.

If the company pays after receiving the letter of demand, you have saved time and money. If they ignore it, you can escalate to a statutory demand or tribunal application.

When to go straight to a statutory demand

A statutory demand is the right tool when:

The debt is $4,000 or more. This is the threshold under the Corporations Act. Below that, use a letter of demand.

You have already sent a letter of demand and been ignored. If the company has not responded to a polite request, a statutory demand shows you are serious.

The company is insolvent or close to it. If you suspect the company is struggling financially, a statutory demand forces them to act. Directors of insolvent companies face personal liability if they continue trading while unable to pay debts.

You are prepared to wind up the company. A statutory demand is not a bluff. If the company does not pay or apply to set it aside, you must be ready to file a wind-up application. This typically costs additional legal fees and court filing fees.

The debt is undisputed. Do not use a statutory demand if the company has a genuine dispute about the amount owed or the quality of your work. The court will set it aside, and you will have wasted time and money.

How to prepare a statutory demand

A statutory demand must be in the prescribed form under the Corporations Regulations.

The form must include:

The exact name and ACN of the company debtor
The amount owed (must be a liquidated sum)
A description of the debt (invoice number, date, services provided)
A statement that the debt is due and payable
Your name and address for service

You must also prepare a supporting affidavit sworn before a Justice of the Peace or solicitor. The affidavit verifies the debt is owed, the amount is correct, the company has not paid despite demand, and there is no genuine dispute.

Once prepared, the statutory demand must be personally served on the company. You cannot email it or post it. Personal service means handing it to a director, secretary, or someone at the registered office.

ClaimDone prepares the statutory demand form and affidavit template for $197. You are responsible for arranging personal service (a process server typically costs $100–$200).

What happens after you serve a statutory demand

The company has 21 days from the date of service to:

Pay the debt in full (most common outcome)
Apply to the court to set aside the demand (if they claim a genuine dispute or defect in the demand)
Do nothing (allows you to apply to wind up the company)

If the company applies to set aside the demand, you may need to attend a court hearing. If the court finds a genuine dispute, the demand will be set aside. If the court finds no dispute, the company must pay your costs.

If the company does nothing, you can file a wind-up application. This is a Supreme Court proceeding. Filing fees vary by state but typically range from $1,300 to $1,800. You will also need a solicitor.

Most companies pay before it reaches this stage. The cost and reputational damage of a wind-up application are too high.

Common mistakes contractors make

Using a statutory demand for a disputed debt. If the company has raised a genuine dispute about the quality of your work or the amount owed, a statutory demand will be set aside. Use a letter of demand or tribunal application instead.

Not checking the company is registered. Statutory demands only apply to companies registered with ASIC. If the debtor is a sole trader or partnership, use a letter of demand.

Serving the demand incorrectly. Personal service is mandatory. If you post the demand or email it, it is invalid.

Bluffing. Do not issue a statutory demand unless you are prepared to follow through with a wind-up application. If the company calls your bluff, you lose credibility.

Waiting too long. Debts become harder to recover over time. Issue a letter of demand within 30 days of the invoice due date. If ignored, escalate to a statutory demand within 60 days.

How Claim Done helps contractors recover unpaid invoices

ClaimDone prepares both letters of demand and statutory demands for contractors Australia-wide.

For debts under $4,000 or first attempts:

Use the letter of demand service. ClaimDone’s Proprietary AI Engine drafts a professionally formatted letter citing the applicable law and delivers it to the company automatically. $79 flat fee, done in 60 minutes.

For debts over $4,000 against registered companies:

Use the statutory demand service. Claim Done prepares the prescribed form and supporting affidavit template for $197. You arrange personal service and file if necessary.

Both services are fixed-fee, no subscription, and completed within 60 minutes of submitting your intake form.

Which tool gets you paid faster?

If the company owes you less than $4,000, start with a letter of demand. If they owe $4,000 or more and have ignored your requests, a statutory demand is the fastest path to payment.

Most contractors recover their money after the first letter of demand. If that fails, a statutory demand forces the company to pay or face insolvency.

Do not let unpaid invoices drag on. The longer you wait, the harder it is to recover. Issue a formal demand, set a deadline, and follow through. Start with ClaimDone’s letter of demand service for debts under $4,000, or go straight to a statutory demand if the debt is $4,000 or more and you are ready to escalate.

Frequently Asked Questions

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

No. The Corporations Act sets a minimum debt threshold of $4,000 for statutory demands. If your invoice is below that amount, use a letter of demand or file a tribunal application.

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

The company can apply to the court within 21 days to set aside the demand. If the court finds a genuine dispute, the demand will be set aside. If the dispute is not genuine, the company must pay your costs and the debt.

Can I email a statutory demand to the company?

No. A statutory demand must be personally served on the company. This means handing it to a director, secretary, or someone at the registered office. Posting or emailing it is not valid service.

How long does a company have to pay after receiving a statutory demand?

The company has 21 days from the date of service to pay the debt in full or apply to set aside the demand. If they do neither, you can apply to wind up the company.

Should I send a letter of demand before a statutory demand?

It is often a good idea. A letter of demand is cheaper, less aggressive, and gives the company a chance to pay without the threat of insolvency. If they ignore it, you can escalate to a statutory demand.

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