Letter of Demand: When a Lawyer Should Send It
Updated 22 September 2026 · General information, not legal advice
A letter of demand is a written request that a debtor pay a stated amount by a set deadline, usually 7 to 21 days, before the creditor starts court proceedings. It sets out who owes the money, how much, why it is owed and what happens if it is not paid. In South Australia, the courts ask claimants to give a final notice or letter of demand and wait 21 days before lodging a claim, or the filing costs may not be recoverable.
The first step is to confirm the debt: the invoice or contract, the amount due, and any interest the contract allows. Then send the letter by a method that can be proved, such as email and registered post, and diarise the deadline. A creditor who wants the letter to carry legal weight usually asks one of the Commercial & Business Lawyers in Australia to send it on firm letterhead.
What does a letter of demand contain?
A letter of demand contains 8 parts:
- The parties. The full legal name of the debtor and the creditor, with ABNs for businesses.
- The debt. The invoice numbers, the goods or services supplied and the dates.
- The amount. The principal, plus any interest or fees allowed by the contract, shown separately.
- The legal basis. The contract, terms of trade or other reason the money is owed.
- The deadline. A specific date, commonly 7, 14 or 21 days from the letter.
- Payment details. How to pay, and who to contact to propose a payment plan.
- The consequence. The step the creditor will take if the deadline passes, such as filing a claim.
- Supporting documents. Copies of the invoice, contract or statement of account.
A letter of demand should not threaten action the creditor does not intend or is not entitled to take, or misstate the debt or its consequences. Misleading or harassing debt collection conduct can breach the Australian Consumer Law.
When should a lawyer send a letter of demand?
A lawyer should send a letter of demand when the amount is significant, the debtor disputes the debt, or the creditor is ready to go to court if payment does not arrive. The situations below show when a self-written letter is usually enough and when legal help adds value.
When the debtor has simply not paid
A first reminder and a firm letter from the business itself often resolve an overdue invoice. A lawyer's letter is the next step if those are ignored.
When the debtor disputes the debt
A disputed debt needs a letter that answers the dispute and states the legal basis precisely. A lawyer can assess the strength of the claim before a court filing.
When the debtor is a company
A company debtor that owes at least $4,000 can be served with a statutory demand under section 459E of the Corporations Act 2001 (Cth). This is a separate, formal document with strict rules, and errors can lead to it being set aside.
When the amount is large
Claims above the small claims limit go through a court's general division, where legal representation is usual and costs rise. See the Litigation Lawyers in Australia rankings for firms that run debt claims in court.
What are the small claims limits in each state?
Small claims limits in Australia range from $10,000 in Western Australia to $25,000 in Queensland, the ACT and the Northern Territory, as at September 2026. A claim under the limit goes to a lower-cost division or tribunal where legal representation is limited.
| State or territory | Small claims forum | Small claims limit | Next level |
|---|---|---|---|
| NSW | Local Court, Small Claims Division | $20,000 | Local Court General Division, up to $100,000 |
| Victoria | VCAT Civil Claims List (goods and services disputes) | Set by case type | Magistrates' Court, up to $100,000 |
| Queensland | QCAT minor civil disputes (minor debt) | $25,000 | Magistrates Court |
| Western Australia | Magistrates Court, minor case claim | $10,000 | General procedure claim, up to $75,000 |
| South Australia | Magistrates Court, minor civil claim | $12,000 | General claim, up to $100,000 |
| Tasmania | Magistrates Court, minor civil claim | $15,000 | Civil claim, $15,001 to $50,000 |
| ACT | ACAT civil disputes | $25,000 | Magistrates Court |
| Northern Territory | NTCAT | Under $25,000 | Local Court, $25,000 to $250,000 |
Court filing fees change each year; the guide to Court Filing Fees in Australia lists them by court.
What happens after the deadline passes?
When the deadline passes without payment, the creditor has 4 main options:
- Negotiate. Accept a payment plan and record it in writing.
- File a claim. Lodge a claim in the small claims division, tribunal or court that matches the amount.
- Serve a statutory demand (companies only). If a company does not pay or apply to set the demand aside within 21 days, it is presumed insolvent and a creditor can apply to wind it up.
- Enforce a judgment (individuals). After obtaining a final judgment of at least $10,000, a creditor can apply to the Official Receiver for a bankruptcy notice under section 41 of the Bankruptcy Act 1966 (Cth). The debtor then has 21 days to comply.
Statutory demands and bankruptcy notices lead to insolvency processes, which usually end debt recovery by ordinary means. The guide to Insolvency vs Bankruptcy in Australia explains what follows.
How do you respond to a letter of demand?
Respond to a letter of demand before the deadline, in writing, whether or not you agree that the money is owed. Ignoring it is the one option that removes choices.
If you agree you owe the money
Pay by the deadline, or propose a realistic payment plan in writing and ask for written acceptance.
If you dispute the debt
State the reasons in writing, with copies of the relevant documents, and keep a record of all correspondence. A court will later look at whether each side acted reasonably.
If you receive a statutory demand
A company that disputes a statutory demand must apply to court to set it aside within 21 days of service, under section 459G of the Corporations Act. The 21 days cannot be extended, so legal advice is needed straight away.
How much does a lawyer's letter of demand cost?
A lawyer's letter of demand typically costs around $200 to $800 on a fixed fee for a straightforward debt, and more where the debt is disputed or the letter needs a detailed legal argument. These ranges are indicative as at September 2026 and vary between firms. Some contracts allow a creditor to recover collection costs from the debtor, so check the terms of trade.
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View firm profileFinding a commercial lawyer for debt recovery
A lawyer's letter of demand is most effective when the firm is ready to take the next step. The Commercial & Business Lawyers in Australia rankings compare firms that handle debt recovery by city, including Commercial Lawyers in Sydney, Commercial Lawyers in Melbourne, Commercial Lawyers in Brisbane and Commercial Lawyers in Perth. If the debtor disputes the claim and it heads to court, compare Litigation Lawyers in Sydney and other litigation specialists.
Frequently asked questions
Is a letter of demand legally binding?
No. A letter of demand is a formal request, not a court order. It does not force the recipient to pay, but it records the claim and the deadline, and it can affect who pays the costs of later court proceedings.
Do I have to send a letter of demand before going to court?
It depends on the state. In South Australia, a notice of intention to sue, such as a final notice or letter of demand, should be given 21 days before a claim is lodged, or the filing costs may not be recoverable. Elsewhere, sending one first is standard practice, and a lawyer can check whether the court's rules require any pre-action step.
Can I write my own letter of demand?
Yes. Anyone owed money can send a letter of demand. A letter on a lawyer's letterhead shows the creditor is ready to start proceedings, and a lawyer can check that the amount, the interest and the legal basis are correct.
Is a statutory demand the same as a letter of demand?
No. A statutory demand is a formal notice under section 459E of the Corporations Act 2001 (Cth) served on a company for a debt of at least $4,000. If it is not paid or set aside within 21 days, the company is presumed insolvent.