Former client/employer owes me (a contractor) money, reluctant to pay

While I'm not going to address your specific question of when to take legal action, I want to mention a highly effective collection method a partner of mine used to use when lines of communication were still open with a delinquent client like this.

Call up your contact and stress that you can no longer afford to wait for this payment, and it must be settled immediately. When they offer the usual "I'll send it right away/tomorrow etc." response, tell them, "no need, I have a meeting nearby in 30 minutes, I'll stop by and pick it up, see you shortly."

Head into their office with a copy of your bills/invoices (if relevant) and pick up the cheque/cash/whatever, be prepared to write a receipt if requested.

This works because they have just agreed they owe you money, and claimed to have the funds available. Avoiding paying you now will mean admitting they lied. Plus, it's harder to give you the run-around face to face, especially if you are on good terms.

It's worth a shot before engaging legally.

Hard line is one way to do things as other answers suggest.

I take a different approach which I believe has worked out for me in the long term.

I'm as hard line as anyone normally, but during any natural disaster I write off all bills for clients who are struggling, even if it means I'll struggle a bit as well. After one cyclone I donated every computer I had for sale to clients to get them back up and running and rebuilt their networks gratis. So quite a big loss for me. This has meant I ended up living on noodles and what I could get from my garden at times. But I still have those same clients 10 years later and their loyalty is rock solid. It's something they will never forget.

It's not the best strategy short term, but in terms of customer relations it's huge and I must admit it makes me feel good as well.

Lawsuits against clients are never a good look and their outcome is both uncertain and unknown what effects it could have further down the track, they may be necessary, but sometimes it's best to just put things down to experience. That's something you need to judge for yourself.

Something to think about.

How long should I wait before a lawsuit?

First, suing them may not even be needed. The simple act of getting an attorney and having them contact the company on your behalf may be enough to get them to pay you.

Second, how long should you wait is a subjective question. My opinion is that you've waited long enough. If it were me, I'd contact an attorney now.

Before 4 months in

You’re already past the window where you should be taking appropriate action. You are owed that money by law in nearly every locality, and it’s not that he “can’t” pay it it’s that he is putting that money into ongoing operations instead.

Contact a local lawyer, they will take a retainer and send the business a threatening letter, which often will get results. Then you can decide if you have further actions that are cost effective (and the lawyer will tell you) - small claims yourself, or there may be governmental orgs or the like you can work with.