Written by: Eloise Turnbull, Associate Solicitor, Litigation (Updated: 6th November 2026)
Understanding your options for recovering an unpaid debt, assessing the debtor’s financial position and deciding when legal action is worthwhile.
Our article “Customer Gone Into Liquidation? What Can Your Business Recover?” looked at what a supplier can recover once a customer has entered administration or liquidation. This article deals with the earlier stage: a customer who has stopped paying and ignored your letter of demand.
That stage matters because an ignored demand is often the first visible sign that a customer is in financial difficulty. While the customer is still trading, a creditor can commence proceedings, enforce a director’s guarantee or negotiate a payment arrangement. Once an administrator or liquidator is appointed, most of those options are restricted or replaced by a proof of debt.
You have completed the work, issued your invoices and sent a formal letter of demand. The deadline has passed, and the customer has neither paid nor responded. Spending more money to recover what you are already owed is frustrating. Before escalating, the question is not only whether you are entitled to payment, but whether you can realistically recover it. The answer depends on the strength of your claim, the terms of your contract, the debtor’s financial position and the cost of pursuing recovery.
When should you escalate an unpaid debt?
Once the deadline in your letter of demand has passed, assess whether further negotiation is likely to achieve anything. Where a customer has ignored repeated requests for payment and has no apparent basis for disputing the debt, legal action may be justified. Where payment is being withheld because of alleged defective work, incomplete services or disputed charges, the position needs closer review before formal recovery action is taken.
Before deciding, review the following, or ask us to review them for you:
- The correct debtor. Confirm whether you contracted with an individual, a partnership, a company or another entity. A business name on an invoice does not necessarily identify the party legally responsible for payment.
- Your entitlement to payment. Check the contract, the agreed scope of work and the payment terms to confirm the debt is due.
- The amount outstanding. Make sure all part-payments, credits and agreed deductions have been accounted for.
- Potential defences. Review any complaints or correspondence that could give rise to a dispute, set-off or counterclaim.
A debtor who ignores a letter can still defend court proceedings later. Identifying likely disputes early helps avoid unnecessary legal costs.
Check for existing security or guarantees
Before taking action, review your contract, credit application and terms of trade to see whether your business already holds security for the debt. This may include a personal guarantee from a director, a security interest registered or capable of registration on the Personal Property Securities Register (PPSR), or a mortgage or charge over property.
A charging clause in a credit application may support a caveat over the debtor’s land. However, a contractual debt alone does not create a caveatable interest. A caveat lodged without reasonable cause can expose the creditor to a claim for compensation under section 130 of the Land Title Act 1994 (Qld), so the clause should be checked before a caveat is lodged.
These rights are worth confirming now rather than later. As our article on customer liquidation explains, a retention-of-title interest that has not been properly registered can be lost entirely when an administrator or liquidator is appointed. Enforcing a director’s guarantee during an administration also generally requires the court’s leave.
Can the debtor actually pay?
A judgment does not guarantee payment. Before taking action, consider what is known about the debtor’s financial position and whether they have assets or income available to meet the debt.
For a company, searches of the records held by the Australian Securities and Investments Commission (ASIC) will show whether it remains registered, whether an external administrator has been appointed and whether insolvency notices have been published. Title searches may identify land owned by the debtor, and PPSR searches may reveal security interests held by other creditors. None of these searches establishes solvency. Property may be heavily mortgaged, equipment may be financed, and a business that is still trading may have substantial debts. Where a director has given a personal guarantee, the director’s own financial position is also relevant.
The purpose of these checks is not to investigate every aspect of the debtor’s finances. It is to decide whether there is a reasonable prospect of recovery before you spend more money. A judgment has little commercial value against a debtor who cannot pay it.
If the warning signs point to insolvency, act quickly but carefully. A payment received from a customer that enters liquidation within the following six months may later be challenged by the liquidator as an unfair preference. Recovering the money now does not always mean keeping it.
What about a statutory demand?
If the debtor is a company and the debt is not genuinely disputed, a creditor’s statutory demand under section 459E of the Corporations Act 2001 (Cth) may be a faster alternative to court proceedings. The debt must be at least $4,000. Unless it is a judgment debt, the demand must be accompanied by an affidavit verifying that the debt is due and payable.
The company has 21 days after service to pay the debt or apply to the court to set the demand aside. If it does neither, it is presumed to be insolvent, and the creditor may apply to have it wound up. A company that wants to dispute the demand must apply within the 21 days, and the court cannot extend that period.
A statutory demand is not a debt collection letter. It is the first step towards liquidation, and it should be used only where that outcome is acceptable. If the debt is genuinely disputed, or the company has an offsetting claim, the demand may be set aside and the creditor ordered to pay costs. A company facing a demand may also appoint a voluntary administrator rather than pay. If that happens, the creditor’s position is governed by the rules discussed in our article on customer liquidation. Even a payment made in response to the demand may later be challenged by a liquidator as an unfair preference.
Our guide to statutory demands explains the process in more detail.
What this looks like in practice
We recently acted for a supplier owed a substantial six-figure sum by a corporate customer across a series of unpaid invoices. The customer had stopped paying and did not engage with the supplier’s demands. Because the debt was undisputed and the customer was a company, we issued a statutory demand instead of commencing court proceedings. We then gave notice that the supplier intended to apply to wind the company up. That notice also put the director on notice of a liquidator’s power to recover assets moved out of the company before a winding up, and of the director’s potential personal exposure.
Before a winding-up application was filed, the company entered external administration. The process meant the debt could no longer be ignored, but it did not produce payment. The supplier became an unsecured creditor in the administration.
Three lessons from that matter apply to most ignored demands. First, a statutory demand can prompt an insolvency appointment rather than payment, and if the company is already insolvent, the creditor may simply end up in the queue with other unsecured creditors. Second, a payment received under that pressure may later be clawed back as an unfair preference. Third, any guarantee or security should be identified before the demand is served, not after an administrator is appointed.
Where should you commence debt recovery proceedings?
If court or tribunal proceedings are justified, the appropriate forum generally depends on the amount and nature of the claim. In Queensland, the main options are:
- The Queensland Civil and Administrative Tribunal (QCAT). QCAT can hear minor civil disputes, including claims to recover a debt of up to $25,000. Not every unpaid invoice falls within that jurisdiction, and separate rules apply to disputes between consumers and traders.
- The Magistrates Court. This court hears civil claims up to $150,000.
- The District Court. This court hears civil claims over $150,000 and up to $750,000.
- The Supreme Court. This court has unlimited jurisdiction and generally hears claims over $750,000.
Choosing a forum involves more than the amount outstanding. QCAT offers a less formal and less expensive process for eligible claims, but legal representation is restricted and each party usually bears its own costs. In court, a successful party may recover some of its legal costs, but rarely all of them.
Your claim may also include interest. If your terms of trade provide for interest on overdue accounts, or for the recovery of collection costs, those amounts can usually be claimed. Otherwise, the court has discretion to award interest. The nature of the claim, the complexity of any defence, the anticipated legal costs and the prospects of enforcing a judgment should all be weighed before proceedings are commenced.
What happens if the debtor still does not respond?
Court proceedings generally start with filing a claim and statement of claim and serving them on the debtor. Under rule 137 of the Uniform Civil Procedure Rules 1999 (Qld), a defendant ordinarily has 28 days after service to file a notice of intention to defend and a defence.
If the debtor does not respond within that time, the creditor may be able to obtain default judgment without a trial, provided the procedural requirements are met. If the debtor files a defence, the matter moves through further pleadings, disclosure of documents, evidence and potentially a trial. A debtor who ignored the letter of demand can still contest the claim once proceedings are served, which is why possible defences should be assessed before litigation begins.
What should you prepare before seeking legal advice?
Organised records allow us to assess the debt, identify your recovery options and recommend the next step without delay. Gather:
- the contract, credit application and terms of trade
- quotations, purchase orders, approved variations and relevant instructions
- invoices, account statements and records of payments received
- delivery records, completion certificates or other evidence that the goods or services were provided
- correspondence about payment, complaints or disputed charges
- the letter of demand and evidence of its delivery
- any personal guarantees, mortgages, charges or other security documents.
Also consider how long the debt has been outstanding. Under section 10(1)(a) of the Limitation of Actions Act 1974 (Qld), a claim for breach of a simple contract must generally be commenced within six years after the cause of action arose. That date is not necessarily the date of the invoice. The payment terms and the nature of the obligation may affect it, and a written acknowledgement of the debt or a part-payment may restart the period. If the limitation period, or a contractual deadline, may be approaching, obtain advice promptly.
Recovering the debt without unnecessary expense
An ignored letter of demand may justify formal recovery action, but litigation is not always the best commercial option. A creditor holding an enforceable guarantee or other security has different rights from an unsecured creditor. A debtor with identifiable assets may justify proceedings, while pursuing a financially distressed company may add legal costs without a meaningful recovery.
If your customer has already entered administration or liquidation, different rules apply, and our article on customer liquidation explains what remains available to suppliers at that stage.
At Greenhalgh Pickard, our commercial litigation lawyers assist Sunshine Coast and Queensland businesses with unpaid invoices, contractual disputes and commercial debt recovery. We assess the legal basis of the debt, identify available security and guarantee rights, consider the debtor’s financial position and recommend a recovery strategy proportionate to the amount outstanding. Depending on the circumstances, that may involve further negotiation, enforcing existing security, issuing a statutory demand or commencing proceedings.
If your letter of demand has been ignored, early advice can identify the most effective next step before delay or unnecessary cost reduces the value of your recovery. The aim is not simply to obtain a judgment. It is to recover the money owed to your business as efficiently as possible.
Sources
- rule 283, Uniform Civil Procedure Rules 1999 (Qld)
- section 459E, Corporations Act 2001 (Cth)
- Schedule 3, Queensland Civil and Administrative Tribunal Act 2009 (Qld)
- section 4, Magistrates Courts Act 1921 (Qld)
- section 10(1)(a), Limitation of Actions Act 1974 (Qld)
Disclaimer: This article provides general information only and does not constitute legal advice. It does not take into account your personal circumstances and should not be relied on as a substitute for professional legal advice. Litigation involves significant risks, costs and strict procedural requirements. For advice about your specific situation, please contact Greenhalgh Pickard on (07) 5444 1022.
Greenhalgh Pickard’s Litigation Team
