Debt recovery in NSW: suing for unpaid invoices.

The path from unpaid invoice to payment.

Debt recovery follows a set sequence. First a letter of demand, giving the debtor a last chance to pay. Then a statement of claim filed in the right court if they do not. Then, if they do not defend, default judgment, and if they do defend, a hearing. Finally, if they still will not pay, enforcement. Most debts are recovered somewhere in the first two steps, without ever reaching a contested hearing.

This is general information, not advice on your matter. Whether to sue, and how, depends on the size of the debt, whether the debtor can pay, and whether there is a genuine dispute about the work or goods. A debt that is genuinely disputed is a different problem from a debtor who simply will not pay, and the two are handled differently.

Should you send a letter of demand first?

Almost always, yes. A letter of demand sets out the debt, attaches or refers to the invoice, gives a short deadline to pay, and states that you will start court proceedings and seek interest and costs if payment is not made. It is cheap, it creates a record, and it often works, because many debtors pay once they see that court action is real rather than threatened.

The demand also protects you on costs. Courts expect parties to try to resolve a dispute before suing. A clear demand shows you gave the debtor a chance. Keep it factual and firm, without threats that go beyond what you can lawfully do. If the debtor disputes the invoice in response, that tells you early whether you are chasing a reluctant payer or facing a genuine argument about the work.

Which court do you sue in?

The amount decides the court. Up to twenty thousand dollars, the Small Claims Division of the Local Court, which is informal and cheap and is covered in our guide on small claims. Twenty thousand to one hundred thousand, the General Division of the Local Court. Above one hundred thousand, the District Court. For most unpaid invoices, the Local Court is the right home.

You start by filing a statement of claim, which sets out the debt and what is owed. Our guide on the statement of claim explains what it must contain. The most important thing at this stage is to sue the correct legal entity, the company or person actually liable for the debt, because a judgment against the wrong entity cannot be enforced.

Can you claim interest and costs on a debt?

Yes. You can claim interest on the unpaid amount, either at the rate the contract sets or, if the contract is silent, at the rate fixed by the court's practice note, running up to the date of judgment and continuing afterwards until payment. Over a long-running debt, interest can add a meaningful sum. You can also claim your filing and service costs.

What you cannot usually recover in the Small Claims Division is your legal costs, because professional costs are restricted there. In the General Division, costs generally follow the event, so a winning plaintiff can recover a large part of their legal costs from the debtor. That difference is one reason the value of the debt affects not just which court you use but whether it makes sense to instruct a lawyer.

What if the debtor disputes the debt?

A genuine dispute changes the case. If the debtor says the work was defective, the goods were faulty, or the amount is wrong, they can file a defence and the matter goes to a hearing where you have to prove the debt. That is harder and slower than a straightforward default, and it is where your records earn their keep. Contracts, quotes, invoices, delivery records and correspondence are the evidence that proves what was agreed and what was delivered.

Where the dispute is real, mediation is often the sensible course before a hearing. It is cheaper and faster and it lets the parties settle on their own terms. Our guide on mediation explains how it works. A disputed debt settled at mediation for a discount is frequently a better outcome than a fought hearing that costs more than the discount.

How do you get paid after judgment?

A judgment is not payment. If the debtor still will not pay, you enforce, using a garnishee against wages or a bank account, a writ against goods or property, or an examination to find their assets. Our guide on enforcing a judgment debt sets out the tools. The best method depends on what the debtor earns and owns.

The hard truth of debt recovery is that a judgment against a debtor with no money is worth little. Before you invest in a claim, ask whether the debtor can actually pay. A solvent debtor who is simply slow is worth pursuing to the end. A debtor with no income or assets may not be, and knowing the difference at the start saves you chasing a paper win.

Primary sources: debt recovery in the Local Court runs under the Local Court Act 2007 (NSW), the Civil Procedure Act 2005 (NSW) and the Uniform Civil Procedure Rules 2005 (NSW). Claims are filed through the NSW Online Registry. NSW debt decisions are searchable on JADE.

Common questions

How do you recover an unpaid invoice in NSW?

Send a letter of demand giving a deadline to pay. If the debtor does not pay, file a statement of claim in the right court, the Small Claims Division up to twenty thousand dollars, the General Division up to one hundred thousand. If they do not defend, you can get default judgment; if they defend, the matter goes to a hearing. Then enforce the judgment if they still will not pay.

Do you have to send a letter of demand before suing?

It is not strictly compulsory, but it is almost always sensible. A demand is cheap, creates a record, often produces payment, and protects you on costs, because courts expect parties to try to resolve a dispute before suing. Keep it factual and firm.

Can you charge interest on an unpaid debt?

Yes. You can claim interest at the rate the contract sets, or if the contract is silent, at the rate fixed by the court's practice note, running to the date of judgment and continuing afterwards until payment. You can also claim your filing and service costs.

Which court do you use to recover a debt in NSW?

The amount decides it. Up to twenty thousand dollars, the Small Claims Division of the Local Court. Twenty thousand to one hundred thousand, the General Division of the Local Court. Above one hundred thousand, the District Court. For most unpaid invoices, the Local Court is the right home.

What if the customer says the work was defective?

That is a genuine dispute, and the debtor can defend the claim, sending it to a hearing where you have to prove the debt. Your records, the contract, quotes, invoices and correspondence, become the evidence. Where the dispute is real, mediation before the hearing is often the cheaper and faster way to resolve it.

To speak to a litigation lawyer, call Aaron Kernaghan on 0421 717 019.

This article is written by Aaron Kernaghan, Special Counsel at Good Legal Lawyers, as at 30 August 2026. It is general information and reflects the personal opinion of the author only. It is not legal advice, it is not a substitute for advice on your own matter, and it does not purport to be accurate or complete. The law changes and procedure varies from case to case. For advice on a specific matter, contact Aaron Kernaghan on 0421 717 019 or contact the firm.

More commentary by Aaron Kernaghan.

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