The Letter Before Action: What UK Businesses Must Include, How Long to Wait, and What Happens Next

The Letter Before Action is the last formal step before a UK business commences court proceedings for an unpaid invoice. Get it right and it usually produces payment. Get it wrong and the court can strip the interest from any subsequent award, order the claimant to pay the defendant's costs, or both.

The framework is set by the Practice Direction on Pre-Action Conduct and Protocols, which governs civil claims where no specific pre-action protocol applies. For company-to-company debts, that is exactly where an LBA sits.

This guide sets out what the letter must contain, how long to give the debtor, how the money stacks (statutory interest plus compensation plus reasonable costs), and what the court does if either side ignores the process.

What a Letter Before Action Actually Is

A Letter Before Action, sometimes called a Letter Before Claim, is the pre-court correspondence that puts a debtor on formal notice that court proceedings are imminent unless the debt is paid or a substantive response is provided within a set period.

It is not itself a legal document in the sense of being filed at court. It is a piece of correspondence whose format and timing the court will later examine when deciding how to award costs and interest. That examination is not theoretical. It is the direct mechanism by which the court enforces good pre-action conduct.

The LBA sits at the end of a wider escalation process that starts with a friendly reminder and moves through first and second formal demands. If you have arrived at the LBA stage without those earlier steps documented, the letter still works, but the case file behind it is weaker. Our earlier guide on chasing an unpaid B2B invoice covers the escalation stages leading up to this point in detail.

What the Practice Direction Requires

The Practice Direction on Pre-Action Conduct and Protocols applies to all civil claims where no specific protocol has been published. There is a Pre-Action Protocol for Debt Claims, but it applies only where the debtor is an individual (including a sole trader). For debts owed by companies, LLPs, and partnerships (that are not sole traders), the general Practice Direction is the framework the court expects to see followed.

Paragraph 6 of the Practice Direction sets out what the parties are expected to do before proceedings are issued. The relevant part is short enough to read in full:

Practice Direction on Pre-Action Conduct and Protocols, paragraph 6

Where there is no relevant pre-action protocol, the parties should exchange correspondence and information to comply with the objectives in paragraph 3, bearing in mind that compliance should be proportionate. The steps will usually include —

(a) the claimant writing to the defendant with concise details of the claim. The letter should include the basis on which the claim is made, a summary of the facts, what the claimant wants from the defendant, and if money, how the amount is calculated;

(b) the defendant responding within a reasonable time — 14 days in a straightforward case and no more than 3 months in a very complex one. The reply should include confirmation as to whether the claim is accepted and, if it is not accepted, the reasons why, together with an explanation as to which facts and parts of the claim are disputed and whether the defendant is making a counterclaim as well as providing details of any counterclaim; and

(c) the parties disclosing key documents relevant to the issues in dispute.

Three practical points come out of paragraph 6. First, the LBA must state how the amount is calculated, not just the total. Second, the response window is judged against the complexity of the case (14 days is the floor for a straightforward B2B invoice). Third, both parties are expected to disclose key documents, which for a debt claim usually means the contract, invoices, and any relevant correspondence.

What the Letter Must Contain

A well-drafted LBA in a B2B recovery matter contains the following elements:

1. Clear identification of the parties, including the debtor's registered company number and registered office where relevant.
2. The basis of the claim. A one-paragraph summary of the trading relationship, the work done or goods supplied, and the debt that arose.
3. The amount claimed, broken down. Principal debt (with invoice numbers, dates and amounts), plus statutory interest calculated to date, plus statutory compensation per invoice, plus any reasonable costs to be added under section 5A(2A) of the 1998 Act.
4. The statutory basis for interest and compensation, cited to section 6 and section 5A of the Late Payment of Commercial Debts (Interest) Act 1998.
5. A response deadline. For a straightforward B2B debt, 14 days from the date the letter is deemed served. Longer if the case is genuinely complex.
6. An offer to consider alternative dispute resolution (ADR), including mediation. The court expects the parties to consider ADR before issuing proceedings.
7. A statement of intent. If the debtor does not respond or pay within the deadline, court proceedings will be issued without further notice.
8. Bank details for payment and a clear payment reference.
9. A reservation of rights. Any personal guarantee, security, retention of title or other contractual remedy is preserved.

The letter should be sent by first-class post (for the purposes of formal service) and by email (for speed and evidence of receipt). Keep the Post Office proof of posting slip on file. It is free and it is essential.

How Long to Give the Debtor

The Practice Direction sets the response window at "14 days in a straightforward case and no more than 3 months in a very complex one" (paragraph 6(b)). For most unpaid B2B invoices, the case is straightforward and 14 days is the appropriate deadline. Two situations justify longer:

• A substantive dispute over scope, quality, or contract terms. Where the debtor is likely to raise a genuine counterclaim or dispute, giving 21 or 28 days shows the court that the process was calibrated to complexity.
• An overseas or multi-entity debtor where document gathering will realistically take longer.

Where the debtor is a sole trader rather than a company, a different regime applies: the Pre-Action Protocol for Debt Claims requires 30 days for the reply. Getting the wrong regime in the wrong case is a common footfault.

Once the deadline expires without payment or a substantive reply, proceedings may be issued. There is no requirement to send a further reminder before filing.

The Money That Stacks on Top

An LBA in a commercial recovery matter should never claim just the principal debt. The Late Payment of Commercial Debts (Interest) Act 1998 gives the claimant three additional entitlements, all of which should be quantified in the letter.

Statutory interest

Under section 6 of the 1998 Act, statutory interest on an overdue commercial debt runs at the Bank of England base rate plus 8%. The base rate at the time of writing is 3.75% (Bank of England), which fixes the statutory rate at 11.75% per annum. The rate is fixed for the six-month period covering when the debt became late, so it does not fluctuate mid-claim.

On a £10,000 invoice at 11.75%, interest runs at approximately £3.22 per day. On a case involving three overdue invoices totalling £30,000 that are on average four months late, the interest alone is around £1,175.

Fixed compensation under section 5A

Section 5A of the 1998 Act adds a fixed statutory sum per late invoice, over and above interest. The letter should quote it, and section 5A itself is short enough to include in full:

Late Payment of Commercial Debts (Interest) Act 1998, section 5A

(1) Once statutory interest begins to run in relation to a qualifying debt, the supplier shall be entitled to a fixed sum (in addition to the statutory interest on the debt).

(2) That sum shall be —
(a) for a debt less than £1,000, the sum of £40;
(b) for a debt of £1,000 or more, but less than £10,000, the sum of £70;
(c) for a debt of £10,000 or more, the sum of £100.

(2A) If the reasonable costs of the supplier in recovering the debt are not met by the fixed sum, the supplier shall also be entitled to a sum equivalent to the difference between the fixed sum and those costs.

Two points that are commonly missed. Firstly, section 5A applies per invoice, not per claim. A case with five overdue invoices attracts five fixed sums separately. Secondly, section 5A(2A) allows the reasonable costs of recovery (including third-party recovery fees) to be added on top of the fixed sum where they exceed it. This is the statutory route by which a well-drafted LBA can pass reasonable recovery costs to the debtor.

Reasonable costs

Where recovery costs (such as commission paid to a commercial recovery firm) exceed the fixed section 5A sum, section 5A(2A) entitles the supplier to the difference. In practical terms, on a case with a £10,000 principal, that means the £100 fixed sum plus the excess of the recovery commission over £100. The letter should state that reasonable recovery costs will be added under section 5A(2A), whether or not the exact figure is quantified at the LBA stage.

What Happens If the Debtor Ignores It

If the deadline expires and the debtor has neither paid, proposed a payment plan, nor substantively disputed the claim, the next step is a court claim (typically via Money Claim Online for debts up to £100,000, or the County Court Money Claims Centre for larger sums). Court and hearing fees are added to the claim and, if the claim succeeds, ordinarily awarded against the debtor.

Two features of the Practice Direction are worth understanding at this point, because they change the calculus for the debtor.

The court can penalise a debtor who ignored the LBA. Under paragraph 16(d) of the Practice Direction, the court may award interest "at a higher rate, (not exceeding 10% above base rate)" against a defendant who has unreasonably failed to comply with the Practice Direction. That is a rate ceiling of 13.75% at current base rate, applied to the awarded sum, on top of any statutory interest.

Costs consequences follow non-compliance. Under Civil Procedure Rules, Part 44.2(5), when the court decides how to award costs, "the conduct of the parties" includes "conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice Direction on Pre-Action Conduct or any relevant pre-action protocol". A debtor who ignored a properly drafted LBA can find themselves on the wrong end of an indemnity costs order.

The same rule cuts the other way. A claimant who filed proceedings without giving the debtor a properly drafted LBA and a reasonable response window risks being deprived of interest, having costs awarded against them, or both, under paragraph 15 of the Practice Direction. This is why the LBA is not a formality. It is the piece of paper the court will read most carefully.

Common Ways the LBA Goes Wrong

Five patterns come up regularly in cases that arrive on our desk after a self-drafted LBA has failed:

• The 7-day letter. A letter demanding payment "within 7 days or court proceedings will follow" is not compliant with paragraph 6. The court will treat it as inadequate notice and, if proceedings follow, the claimant is exposed on both costs and interest.
• Total without breakdown. "You owe us £14,750" fails paragraph 6(a). The court expects the letter to show how the amount is calculated. Principal by invoice, interest calculated to date at the correct rate, and section 5A compensation itemised per invoice.
• Wrong regime. Sending a 14-day PDPAC letter to a sole trader debtor (who is entitled to 30 days under the Pre-Action Protocol for Debt Claims) is a technical failure that a defendant's solicitor will point out at the earliest opportunity.
• No ADR offer. Silence on alternative dispute resolution is a common ground for the court to reduce costs. Even a one-line offer to consider mediation is enough to satisfy the point.
• Emotional tone. A letter that reads as personal or aggressive undermines the entire escalation. The court expects the correspondence to be professional and factual. Solvent debtors respond to a well-drafted formal letter. They ignore an angry one.

When to Hand the Case to a Specialist

An LBA can be drafted in-house. Many SMEs do so competently, particularly for straightforward invoice claims against solvent trading debtors. There are two situations where the value of external drafting exceeds the cost.

The first is where the case involves a substantive dispute, a personal guarantee, a retention-of-title clause, or a contractual jurisdiction question. Any of these turns a routine LBA into a document the court will scrutinise on its technical merits. A weak LBA in a complex case is worse than no LBA at all.

The second is where the case is one of several. Running three, four, or ten LBAs in parallel while continuing to trade is not a task an SME finance function can absorb without something else giving. Specialist firms industrialise the process: standardised drafting to the exact PDPAC format, diarised deadlines, automated interest calculation, court-ready evidence bundles.

At TRDG Commercial Credit Management we draft and issue LBAs as part of our end-to-end commercial recovery service, on a no-recovery-no-fee basis for the principal debt. Court fees, where a case escalates, are separate and always agreed in writing before they are incurred.

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