Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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Chasing unpaid invoices takes time, cashflow and energy away from growing your business. If friendly reminders haven’t worked, a clear, professional Letter of Demand can be the nudge a debtor needs to pay up - without jumping straight to court.
In this guide, we’ll explain what a Letter of Demand is, when to use it, what to include, and provide a copy‑and‑paste sample letter you can customise for your business in Australia. We’ll also cover what to do if the debt still isn’t paid, and how to reduce late payments in future with stronger contracts and security.
What Is A Letter Of Demand And When Should You Use One?
A Letter of Demand is a formal letter you send to a customer or client who owes your business money. It sets out the amount owing, why it’s owed, the steps you’ve already taken, and a final deadline to pay before you escalate. It’s typically used after you’ve sent invoices and at least one or two polite reminders. For many debtors, a formal letter signals you’re serious and can prompt quick payment. Common scenarios include overdue invoices, unpaid milestone payments, or sums owed after a breach of contract (for example, where services were delivered but not paid for). A Letter of Demand is not a court document - but it’s often the last step before legal action. A good letter clearly states your position, gives a reasonable timeframe, and outlines potential next steps if the debt remains unpaid.What To Include In Your Letter Of Demand
Keep your letter concise, factual and professional. Avoid emotional language and stick to the relevant details. At a minimum, include:- Parties’ details: Your business name and ABN, and the debtor’s legal name and address.
- Background summary: What was supplied (goods or services), the contract or purchase order reference, and the date of supply.
- Amount owing: The principal amount, any agreed interest or late payment fees under your contract, and the total now due.
- Evidence: Invoice number(s), due date(s), and copies of the invoice(s) and contract terms.
- Timeline of reminders: Briefly note prior reminders sent and dates.
- Clear demand and deadline: A reasonable timeframe (often 7-14 days) for full payment.
- Payment method: Bank details or how to pay.
- Consequences of non-payment: For example, commencing recovery action or engaging a collection agent, and seeking costs where contractually permitted.
- Contact details: A point of contact to discuss or dispute the amount.
Sample Letter Of Demand (Copy & Customise)
Use this sample as a starting point and tailor it to your situation. Replace the bracketed fields with your details. Keep copies of everything you send.By Email and Post Subject: Letter of Demand - - $ Dear , We refer to the goods/services supplied by (ABN ) to under . As at today’s date, the following amount remains overdue: • Invoice: , issued , due - $ • Total now due: $ (exclusive/inclusive of GST as applicable). We have previously requested payment on . Despite these reminders, payment has not been received. Demand for Payment Please arrange payment of the total amount of $ to the following account within days of the date of this letter (that is, by ): Account Name: BSB: Account Number: Reference: If you disagree with the amount claimed, please provide written details of your reasons (with supporting documents) by . Consequences of Non-Payment If payment is not received by the deadline above, we reserve our rights to take further action without further notice, which may include: • Referring the matter to a debt collection agency or commencing legal proceedings to recover the debt; and • Seeking recovery of interest and reasonable recovery costs as permitted under our agreement and at law. Nothing in this letter is intended to waive any of our rights, all of which are reserved. If you have already made payment, please provide the remittance advice so we can reconcile our records. Yours sincerely, (ABN ) |Tip: Send the letter by email and post to the debtor’s last known address, and keep proof of delivery. If the contract requires notices to be sent in a particular way, follow that method as well.
Step-By-Step: Sending Your Letter Of Demand The Right Way
1) Check Your Contract And Records
Confirm the amount, due date, and any rights to claim interest or recovery costs. The relevant terms are usually in your master services agreement, quote acceptance, or your Terms of Trade. Gather invoices, delivery receipts, emails and notes of prior reminders.2) Confirm The Debtor’s Legal Entity
Address the letter to the correct legal party - company, sole trader or partnership - and include the ACN/ABN if you have it. This reduces arguments about “wrong entity” later.3) Set A Clear, Reasonable Deadline
Seven to fourteen days is common. If the debt is older or there’s been back-and-forth, a shorter deadline may be justified, but keep it reasonable.4) Send To All Available Addresses
Email is fast, but also send a hard copy to the postal address in your contract or on the debtor’s website. Keep proof of sending and delivery where possible.5) Be Open To Dialogue (But Stay Firm)
If the debtor raises a genuine dispute, consider whether a partial payment, evidence exchange or short payment plan could resolve matters quickly. If you do strike a deal, formalise it in writing - a Deed of Release and Settlement can lock in terms and prevent future claims.6) Diary The Deadline And Next Steps
Note the due date and be ready to escalate if payment isn’t made. Consistency shows you’re serious and protects your cashflow.What If They Still Don’t Pay? Next Legal Options
If the deadline passes without payment or a workable plan, you have several options. The right path depends on the amount, your contract, and whether there’s a dispute.- Debt collection agency: A practical option for smaller, undisputed debts. Agree the fee structure and ensure your contract allows recovery of costs if you plan to pass them on. For ongoing recovery work, some businesses use a tailored Debt Collection Agreement with their agent.
- Letter from a lawyer: A lawyer’s demand can carry extra weight and set out the legal basis clearly. It also prepares the ground if you need to file a claim.
- Negotiated settlement: If there’s a dispute or cashflow issue, you might accept a discounted lump sum or instalments secured by a guarantee or charge, documented in a binding deed.
- Commence legal proceedings: As a last resort, you can file a claim in the appropriate court or tribunal. This step can also include claiming contractual interest and costs where permitted.
- Use security interests: If you hold collateral or a security interest (for example, goods supplied under retention of title), check your rights to repossess or enforce, especially if you registered on the PPSR.
How To Prevent Late Payments In Future (Contracts & Security)
A strong Letter of Demand is useful - but the best fix is preventing late payments in the first place. Tighten your onboarding, contract terms and credit controls so you get paid on time more often.Strengthen Your Upfront Terms
- Terms of Trade: Set clear payment terms, milestones, interest on late payments, recovery costs, suspension rights, and retention of title for goods. Make sure customers accept these terms before supply.
- Credit Application Terms: If you offer accounts, vet customers and set credit limits. Include personal guarantees, authority to conduct credit checks, and clear consequences of default.
- Interest and fees: If you want to charge interest or admin fees on late invoices, your terms must say so. Ensure your approach to late payment fees complies with Australian Consumer Law principles against penalties and unfair terms.
Secure Your Position With Registrations
- Retention of title and security: For goods or higher-risk credit, consider using a General Security Agreement or retention of title clauses and register your interest on the PPSR. This can elevate you from unsecured to secured creditor if things go wrong.
Make Payment Easy
- Clear invoices: Reference the contract, show due dates, list all ways to pay, and send promptly after delivery.
- Practical payment terms: Set realistic but firm timelines. Align deposit and milestone payments with your costs. For guidance on wording, see our tips on setting invoice payment terms.
Have A Playbook For Overdues
- Reminder schedule: Automate a sequence (friendly reminder, overdue notice, Letter of Demand) and stick to it.
- Escalation policy: Decide when to pause work, when to hand to collections, and when to seek legal action - and follow through.
Common Mistakes To Avoid With Letters Of Demand
- Using the wrong entity name: Check the customer’s legal name and ABN/ACN. Addressing the wrong party can delay recovery.
- Overstating fees or interest: Only claim what your contract allows or what’s legally recoverable. If in doubt, leave it out or clarify it’s “as permitted under our agreement and at law”.
- Threatening action you won’t take: Empty threats undermine credibility. Set a realistic deadline and be prepared to act.
- Ignoring genuine disputes: If the customer raises a specific issue backed by evidence, consider a short, structured process to resolve it, possibly via a negotiated deed.
- Letting things drift: Diarise deadlines and escalate promptly. Time weakens memories and leverage.
Key Takeaways
- A Letter of Demand is a formal, final reminder that sets out the debt, provides a clear deadline, and warns of next steps if unpaid.
- Include the essentials: parties, background, amount owing, evidence, prior reminders, a payment deadline, and consequences of non‑payment.
- Send the letter to all available addresses and keep proof. Follow any notice requirements in your contract to the letter.
- If the debt remains unpaid, consider collections, a lawyer’s letter, a negotiated deed, court action, or enforcing any security interests registered on the PPSR.
- Prevent future late payments with strong Terms of Trade, robust credit application processes, clear payment clauses, and security such as a General Security Agreement.
