What should a letter before action for an unpaid invoice include?
Date, your business and the debtor's registered address, full amount owed, invoice numbers and dates, statutory late payment interest claimed (11.75% APR), fixed compensation under the 1998 Act (£40/£70/£100 by debt size), a deadline for payment or reply (14 days in a straightforward case against a company, 30 days if the debtor is a sole trader), a clear statement that you will issue court proceedings if no payment is received, and your contact details. Required by the Pre-Action Conduct Practice Direction.
What this means for your business
A letter before action is the formal warning you send before starting court proceedings against a customer who has not paid an invoice. Under the Pre-Action Conduct Practice Direction, courts expect this step before a claim is issued, and judges can penalise you on costs if you skip it. The Practice Direction says the other side should reply within a reasonable time, which it describes as 14 days in a straightforward case. If your debtor is a sole trader rather than a company, the Pre-Action Protocol for Debt Claims applies instead: you must enclose its information sheet and reply form and allow 30 days for a reply.
Key points
- The letter must state the total amount owed, including invoice numbers and dates for each unpaid invoice.
- Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 is 8% above the Bank of England base rate, currently 11.75% a year. Show it separately from the principal debt.
- Fixed compensation of £40, £70 or £100 applies depending on the size of the debt and can be added on top of interest.
- Allow 14 days for a straightforward debt owed by a company; a very complex dispute can justify longer, and a sole-trader debtor must be given 30 days.
- The letter must clearly warn that court proceedings will follow if payment is not made by the deadline, as required by the Pre-Action Conduct Practice Direction.
Common pitfalls
A common mistake is sending a vague chaser email instead of a properly formatted letter before action, which weakens your position if the matter reaches court. Businesses also forget to include the statutory interest and compensation figures, or miscalculate them, which can undermine the claim's credibility.
Sending the letter to the wrong registered address, especially for limited companies that have moved or changed structure, is another frequent issue. Failing to give a clear deadline, or giving too short a period, can also count against you under the Pre-Action Conduct Practice Direction if the case later goes to court.
Related questions
Do I have to send a letter before action before I can go to court?
Yes, the Pre-Action Conduct Practice Direction expects it as a standard step before issuing a claim in England and Wales. Skipping it can lead to cost penalties even if you win the case, so it is worth sending even for smaller debts.
Can I claim interest and compensation even if my invoice or contract does not mention it?
Yes, the Late Payment of Commercial Debts (Interest) Act 1998 implies a statutory right to claim interest and fixed compensation on qualifying commercial debts, regardless of whether your terms mention it. This only applies to business-to-business debts, not consumer transactions.
What happens if the debtor ignores the letter before action?
If the deadline passes with no payment or response, you can proceed to issue a claim through the County Court, typically via the Money Claim Online service for straightforward debts. Keep a copy of the letter and proof of postage or delivery, as you may need to show the court you followed the correct process.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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