Law Plus Every business owner deals with a client or customer who won't pay eventually. The instinct is often to either let it go, or jump straight to threatening legal action — but there's a sensible sequence of steps in between that resolves most debts without ever reaching a courtroom. Here's what that ladder actually looks like.
Start with direct contact
Before anything formal, a direct phone call or email is often the fastest way to resolve a genuinely overdue invoice — sometimes it's simply been overlooked, or there's a dispute about the work that needs sorting out first. Keep a record of what's said and agreed. If there's a genuine dispute about the invoice itself (not just non-payment), that needs resolving before recovery action makes sense.
A formal letter of demand
If direct contact doesn't resolve it, a formal letter of demand — ideally from a lawyer — sets out the debt owed, the basis for it, and a clear deadline to pay before further action is taken. A properly drafted letter of demand is often enough on its own to prompt payment, because it signals you're serious and outlines the next steps if the deadline passes.
Statutory demands — for company debtors
If your debtor is a company and the debt is undisputed and above the statutory minimum, a statutory demand under the Corporations Act is a powerful tool. If the company doesn't pay or apply to set the demand aside within 21 days, it's presumed insolvent — which can be grounds for a creditor to apply to wind the company up. Because of how serious the consequences are, this option needs to be used carefully and only where the debt is genuinely undisputed, or it can backfire.
Small claims and tribunal options
For smaller debts, most states have a simplified court list or tribunal designed to be faster, cheaper and less formal than standard litigation, often without needing a lawyer to represent you (though advice on your prospects and paperwork beforehand is still worthwhile). This is often the most cost-effective path once informal recovery has failed, for debts under the relevant threshold.
Court proceedings
For larger or disputed debts, formal court proceedings may be necessary. This is generally the slowest and most expensive option, and even a successful judgment doesn't guarantee you'll actually recover the money if the debtor has no assets or has become insolvent — which is why it's worth an honest assessment of the debtor's ability to pay before committing to this path.
What affects whether it's worth pursuing
Before escalating, it's worth weighing the size of the debt against the cost and time of recovery, whether the debtor actually has the means to pay, and whether the relationship is one you want to preserve. Sometimes a payment plan negotiated directly is a better commercial outcome than a legal win that costs more to enforce than it recovers.
Getting the first step right
A well-drafted letter of demand resolves a surprising number of debts on its own, and sets you up properly for the next step if it doesn't. Our civil litigation and disputes lawyers handle debt recovery commercially, escalating only as far as actually makes sense for the size of the debt.