Summary
- If a letter of demand is ignored, you can send a final demand notice giving the other party seven days to comply before escalating the matter.
- Taking legal action in the local court is available for debts under $100,000, with the small claims division handling debts under $10,000.
- If a defendant fails to respond to a statement of claim within 28 days, you may apply for a default judgment.
- This article is a plain-English guide to the legal options available to Australian business owners in New South Wales when a letter of demand goes unanswered.
- It has been produced by LegalVision, a commercial law firm that specialises in advising clients on debt recovery.
Tips for Businesses
Before commencing court proceedings, send a final demand notice annexing prior correspondence. File a statement of claim in the local court if the debt is under $100,000. Keep records of all correspondence. If the defendant does not respond within 28 days, apply for a default judgment promptly.
In the course of running your business, there may be times when you face unpaid invoices. If this is the case, you may have sent a letter of demand to resolve the issue, which requests the other party to take action and fulfil their obligations. However, there may be times when the deadline passes, and you receive no response. This can not only be frustrating, but it can also interrupt your ability to operate your business. As a result, it is essential that you understand what you can do next if your letter of demand is not answered. This article will set out possible options if your letter of demand is ignored.
Final Demand Notice
If a letter of demand is ignored or unanswered, you should consider sending a final demand letter. This is usually a very short and sharp letter which annexes your previous correspondence and gives the party a further seven days to comply with the demand.
Your original letter of demand may have gone unseen or still be sitting on someone’s desk waiting for action. By sending a final demand notice, you can potentially avoid the additional costs of escalating the matter to court.
Legal Action
Letters of demand outline the actions you will take in the event the other party fails to respond. In most cases, this involves taking the matter to court. Following through with what you said you would do in your letter of demand shows the other party that you take the matter seriously.
If the other party does not reply to your letter of demand, you may consider taking the matter to the local court (for debts less than $100,000). The information outlined below applies to the local courts of New South Wales (NSW) but it is similar in every state and territory. Check your relevant local court website for information specific to your state or territory.
Whether you’re a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.
This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.
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Before Starting Court Proceedings
Before starting court proceedings, check that you can prove the debt clearly. Keep the signed contract, purchase order, invoices, delivery records, emails, payment reminders and any notes of phone calls. This evidence helps show what was agreed, what goods or services were provided and why the amount is due.
You should also confirm the correct legal name of the debtor. For example, the person who ordered the work may not be the company that owes the money. Using the wrong name can delay your claim and may create extra costs.
It is also worth considering whether the debtor can pay. Court action may give you a judgment, but it does not always mean you will receive payment straight away. If the debtor still does not pay, you may need to take enforcement steps, such as seeking a garnishee order or other recovery options available through the court after judgment is entered.
The Local Court Process in NSW
The local court aims to find a just, quick and cheap resolution to matters. The small claims division of the local court deals with matters relating to debts less than $10,000. The court aims to resolve disputes within six months of the date you file the initial claim. Often, people self-represent in matters before the local court; however, it is still a good idea to seek legal advice on what to expect. A lawyer can advise you on ways to frame your argument and the evidence you need to make your case. If the matter is of a higher monetary value, it will take place in the general division of the local court, which hears cases between $10,001 and $100,000.
To begin proceedings in the local court, you or your lawyer will need to file a statement of claim with the court. You then serve the statement of claim on the other party (the defendant). The defendant has 28 days to respond to the statement of claim through a defence or otherwise. If they fail to respond within that time frame, you can apply for a default judgment. A default judgment is an automatic judgment against a party due to the party’s failure to respond to legal proceedings.
Key Takeaways
As a business owner, ensuring your payments come on time is a significant issue, and it can be frustrating when this does not happen. If you have sent a letter of demand and it has been ignored, this can cause stress and delay your day-to-day commercial operations. However, you should know that the letter is not the final course of action for your dispute. Instead, there are other options to escalate the matter further. These include:
- sending a final demand notice to the other party;
- seeking legal advice about future pathways to recover your owed debt; and
- commencing court proceedings.
Considering these steps ensures you are creating a legal strategy that is both time and cost-effective.
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Frequently Asked Questions
A letter of demand is a document you send to another party that acts as a warning in writing to give them the chance to fulfil their obligations and fix the situation. Usually, it will involve you sending a formal letter to somebody who owes you money. Often, you will specify in your letter of demand that you will take legal action if action is not taken.
You can take your matter to the local court if it relates to a debt of less than $100,000.
The defendant has 28 days to respond. If they don’t, you can apply for a default judgment against them.
It annexes your previous correspondence and gives the other party seven days to comply.
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