As a small or medium-sized enterprise (SME), managing cash flow is crucial to your business’s success. Unfortunately, late payments can disrupt your financial stability and growth. When invoices go unpaid despite reminders, it’s time to consider sending a Letter Before Action (LBA).

What is a Letter Before Action (LBA)?

A Letter Before Action (LBA) is a formal letter sent to a customer or client who has failed to pay an outstanding invoice. The letter serves as a final warning before you take legal action to recover the debt. It’s a necessary step in the debt recovery process in the UK, and it shows that you are serious about getting paid.

Why send an LBA?

It’s a legal requirement: In many cases, sending an LBA is a legal requirement before you can take your case to court. The courts want to see that you have given the debtor every opportunity to pay before escalating the matter.

It encourages prompt payment: The threat of legal action is often enough to encourage payment. Many businesses prioritise payments when they receive an LBA because they want to avoid court proceedings and additional costs.

To protect your business: An LBA demonstrates that your business is organised and professional in managing its finances. It shows that you’re serious about debt recovery, which can deter future late payments.

Claim interest and compensation: In the LBA, you can include additional costs like interest on the overdue amount and compensation for debt recovery under the Late Payment of Commercial Debts (Interest) Act 1998. This can add urgency to the debtor’s need to settle.

When to send an LBA?

After reminders: If your initial reminders and follow-ups have been ignored or if the customer has repeatedly promised payment but failed to deliver, it’s time to consider sending an LBA.

Invoice is overdue: When an invoice remains unpaid beyond the due date specified in your payment terms, and all informal attempts to recover the payment have failed, an LBA is appropriate.

After debt collection agency: Debt collection agencies are generally the better option. It is likely to provide faster results compared to court action. They can often apply pressure more effectively and persistently than a single LBA.

Before legal action: An LBA is the final step before pursuing legal action, whether through the County Court or other legal avenues. It gives the debtor one last chance to pay without involving the courts.

How to send an LBA

Be clear: Clearly state the amount owed, the original due date, and any interest or compensation being added. Set a deadline for payment, typically 7 or 14 days from the date of the letter.

Send by tracked/recorded delivery: This ensures you have proof that the letter was sent and received, which could be important if the matter goes to court.

Include “Without prejudice”: Adding “Without Prejudice” protects your communications, ensuring that the contents cannot be used against you if the case goes to court. If the case does proceed to court, the other party cannot present this letter as evidence to argue that you were willing to settle for a lower amount, for example, or that you acknowledged any wrongdoing.

For SMEs, an LBA is an effective and necessary tool for managing unpaid invoices. It’s your last chance to recover the debt without resorting to legal action. Sending an LBA not only protects your business but also enhances your chances of getting paid promptly.

By understanding when and how to send an LBA, you can maintain healthy cash flow and minimise the impact of late payments on your business.

Our Collect-it partner, Darcey Quigley & Co has 18+ years of expertise in recovering B2B UK and International unpaid invoices without going to court – no win no fee: no upfront cost.

Reach out directly to the team to discuss any unpaid invoice, and benefit from their expertise on the topic!

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