Late payment is more than an inconvenience for businesses. It can place pressure on cash flow, affect relationships with suppliers and employees and take valuable time away from running and growing a business.
For businesses that have already chased an unpaid invoice without success, a Letter Before Action, sometimes referred to as a Letter Before Claim, can be an important next step before court proceedings are considered.
Nazma Khatun is a Junior Paralegal in the Dispute Resolution team at NBB Waldrons. Having joined the firm in 2023, Nazma supports clients and solicitors across a range of disputes and has developed experience in helping businesses navigate the early stages of commercial debt and dispute matters.
Late payment remains a major issue for UK businesses
The issue has moved firmly up the political agenda.
In May 2026, the Government introduced the Small Business Protections Bill, describing the reforms as the largest crackdown on late payments in more than 25 years.
The proposed measures included stronger powers for the Small Business Commissioner, tighter controls around payment terms and mandatory interest provisions for certain late commercial payments.
The scale of the problem is also visible in recent industry data. According to BCIS analysis of Department for Business and Trade figures, large construction businesses paid around one in seven invoices late during 2025.
For smaller businesses in particular, delays in receiving money that is already contractually due can have a significant impact.
What is a Letter Before Action?
A Letter Before Action is a formal written demand sent to a debtor before legal proceedings are commenced.
It is not simply a more strongly worded invoice reminder.
The purpose is to clearly set out:
- who the parties are
- the basis of the debt
- how much is owed
- when payment became due
- any supporting documentation relied upon
- what the debtor must do to resolve the matter
- the deadline for responding
- what action may follow if the matter remains unresolved.
The courts in England and Wales expect parties to follow appropriate pre-action procedures before litigation.
Where no specific protocol applies, businesses should consider the requirements of the Practice Direction on Pre-Action Conduct and Protocols.
The aim is to ensure both parties understand the issues, exchange relevant information and consider whether the dispute can be resolved without proceedings.
Why is a Letter Before Action important?
A properly drafted Letter Before Action can serve several purposes.
It may encourage payment
A formal legal letter can demonstrate that a creditor is serious about recovering the debt and may prompt payment where routine reminders have failed.
It can help clarify whether the debt is disputed
Sometimes a debtor does not simply refuse to pay. They may dispute the amount, the quality of goods or services supplied or the terms of the agreement.
Identifying those issues before issuing proceedings can save time and cost later.
It demonstrates reasonable pre-action conduct
The courts expect parties to act proportionately before litigation.
Failing to follow appropriate procedures can potentially affect how a claim is managed and how the court approaches costs.
It creates an opportunity to preserve the commercial relationship
Not every unpaid debt needs to end in litigation.
Recent discussion around debt recovery has increasingly focused on recovering money while preserving viable commercial relationships. For example, Real Business recently highlighted a more relationship-led approach to commercial debt collection, combining firm recovery action with communication and early resolution.
That principle is relevant to legal debt recovery too. The objective should be to recover what is owed in the most commercially sensible way.
When should a business send a Letter Before Action?
A Letter Before Action may be appropriate where:
- invoices remain unpaid after reminders
- a contractual payment obligation has been breached
- payment for goods or services remains outstanding
- a commercial agreement has been breached
- damages or another quantified financial sum are claimed.
Before sending the letter, the creditor should review the evidence supporting the debt.
This may include contracts, invoices, purchase orders, statements of account, emails and records of previous payment requests.
It is also important to identify exactly who owes the money.
Where a business is pursuing an individual, including a sole trader, the specific Pre-Action Protocol for Debt Claims may apply.
Can you claim interest and recovery costs?
Quite possibly. Where qualifying commercial debts are paid late, a business may have rights under the Late Payment of Commercial Debts (Interest) Act 1998.
Government guidance on late commercial payments explains that qualifying creditors may be able to claim statutory interest, currently calculated at 8% above the Bank of England base rate, together with fixed compensation for recovery costs.
Contractual provisions may alter the position, so the agreement between the parties should always be checked carefully.
Interest and charges should never simply be added without first confirming the legal basis for claiming them.
What can happen after a Letter Before Action is sent?
The debtor may:
- pay in full
- ask for time to pay
- propose instalments
- negotiate a settlement
- dispute part or all of the debt
- request further information
- ignore the letter.
The next step will depend on the response.
Where a genuine dispute is raised, the creditor should review the evidence before deciding whether proceedings are proportionate.
Where the debtor does not respond or pay, court proceedings may become appropriate.
For a broader overview of the recovery process, see our existing guide, Are You Owed Money? How to Recover Unpaid Debts Legally and Effectively.
Should you immediately issue court proceedings if payment is not made?
Not necessarily. Before issuing proceedings, businesses should consider both the legal and commercial position. Questions worth asking include:
- Is the debt genuinely undisputed?
- Is there clear evidence supporting the claim?
- Is the debtor likely to be able to pay?
- Are there known assets?
- What will proceedings cost?
- Could settlement achieve a better result?
Government guidance on business debt and continuity options brings together information for both creditors and businesses experiencing financial difficulty, including court claims, insolvency and business rescue options.
Understanding the debtor’s financial position can therefore be just as important as establishing that the debt is legally due.
Nazma highlights:“A Letter Before Action should not simply be seen as a threat of court proceedings. When drafted properly, it gives both parties a clear opportunity to understand the position and resolve the debt before further time and cost are incurred.
“The most important thing is to get the process right from the outset. The rules can differ depending on who owes the money and whether the debt is disputed, so taking advice early can help businesses make a more informed and commercially sensible decision.”
How NBB Waldrons can help
Our UK Debt Collection and Recovery team can help businesses assess unpaid debts, prepare Letters Before Action, calculate recoverable interest where appropriate and advise on the next steps where payment is not received.
We also work alongside our wider Commercial Litigation team where a debt develops into a substantive commercial dispute.
NBB Waldrons supports businesses nationally, with offices across the Black Country and West Midlands, Birmingham, Worcestershire, Gloucestershire and London.
If your business is owed money and informal reminders have failed, contact our team to discuss the most proportionate route forward.
