When a commercial invoice goes unpaid, most Australian business owners face the same question: do I send a letter of demand myself, or hand it straight to a collection agency? The answer depends on the age of the debt, the relationship with the debtor, and how much internal time you're willing to spend chasing.
What a letter of demand actually does
A letter of demand is a formal written notice demanding payment of a specific sum by a specific date, with a stated consequence for non-payment. It is not a legal filing — it's a pre-litigation step that courts expect to see before any proceedings are commenced.
The key word is 'formal.' A letter of demand from your own company letterhead carries weight. A letter of demand issued by a law firm or a debt collection agency on their letterhead carries considerably more weight — response rates are measurably higher when the letter signals that a third party is now involved.
When to send your own letter of demand first
- The debt is fresh (under 30 days past due) and the debtor is normally reliable
- You have an ongoing commercial relationship you want to preserve
- The amount is small and the cost of agency fees would consume most of the recovery
- You know the debtor is experiencing a short-term cash flow issue and intends to pay
When to go straight to a collection agency
- The debt is 60+ days overdue and your own follow-up has been ignored
- The debtor is unresponsive to your calls and emails
- You've already sent your own demand letter and received no response
- You're managing multiple overdue accounts and don't have time to chase each one
- The debtor is showing signs of financial distress
The agency advantage: escalation signal
The single biggest reason to use an agency early is the escalation signal. When a debtor receives correspondence from a debt collection agency — rather than your accounts team — they understand that the situation has formally escalated. This alone resolves a significant proportion of accounts without any further action.
A good agency also issues its own letter of demand as part of the placement process, satisfying the pre-litigation requirement and documenting the correct process. For agencies like Recovia that operate on commission-only, you bear no cost if nothing is recovered.
The cost comparison
| Approach | Upfront cost | Ongoing cost | Best for |
|---|---|---|---|
| Your own letter of demand | $0 cash, staff time | Staff time for follow-up | Fresh debts, trusted relationships |
| Solicitor letter of demand | $200–$600 per letter | Hourly rates if escalated | High-value debts, formal disputes |
| Collection agency (commission) | $0 | 15–35% of amount recovered | Overdue accounts, multiple debtors |
| Legal action (court) | Filing fees + legal fees | Ongoing solicitor fees | Large amounts, clear liability |
Our recommendation for most B2B creditors
Send one internal payment reminder at 7 days overdue. If there's no response at 30 days, issue your own letter of demand. If there's still no response at 45–60 days, place the account with a commercial collection agency. Don't wait longer than 90 days — the older the debt, the lower the recovery rate.
Recovia's letter of demand process is included in every placement at no extra cost. Our agency-issued demands resolve a significant portion of accounts before any further outreach is needed — and you pay only on what we recover.