Letter Before Action: Requirements for Business Debt Recovery
Unpaid invoices threaten business cash flow, whether you are a contractor chasing retentions or a supplier pursuing overdue payments. When informal recovery fails, most businesses know court action is an option. There is, however, a mandatory first step.
Before any court claim can be filed, you must send a Letter Before Action. Courts impose serious penalties on businesses that skip this step, including orders to pay the opponent’s legal costs even when the underlying claim succeeds. What you include and how you structure this letter can determine whether your claim proceeds smoothly or faces costly delays.
Our experienced team offers expert debt recovery support to businesses across construction and commercial sectors, offering clear, fixed-fee advice at every stage of the process. If unpaid debts are affecting your business, contact our team for professional guidance.
What is a Letter Before Action and Why is it Mandatory?
A Letter Before Action serves several critical functions. It warns the recipient that you are serious about the claim and prepared to take legal action. It encourages settlement to avoid time-consuming and costly litigation, and it provides clarity by detailing the facts, legal basis, and specific remedy you are seeking.
This letter is required under the Civil Procedure Rules, which govern civil litigation in England and Wales. Courts expect litigation to be a last resort, making the Letter Before Action a necessary step in demonstrating you have attempted reasonable resolution before involving the courts.
Beyond debt recovery, Letters Before Action apply across all civil and commercial litigation between businesses. This includes breach of contract disputes, disagreements over goods and services, shareholder and partnership disputes, property matters, and intellectual property claims. Whatever the commercial dispute, the Civil Procedure Rules require proper pre-action conduct before court proceedings begin.
Does Your Debt Fall Under a Specific Protocol?
Business debt recovery involves two scenarios depending on the nature of your claim.
Construction and Engineering Disputes
If your debt relates to construction or engineering work, the Pre-Action Protocol for Construction and Engineering Disputes applies. This covers payment disputes involving unpaid invoices, withheld retentions, disputed variations, final account disagreements, and any contractual claims arising from construction projects.
This protocol sets out specific mandatory requirements for what your Letter Before Action must contain and the timeline that must be followed.
General Commercial Business Debts
If your debt relates to general commercial transactions between businesses that do not involve construction or engineering work, no specific protocol applies. However, you must still follow reasonable pre-action conduct under the Civil Procedure Rules. The best practice requirements are similar but less prescriptive than the construction protocol.
What Must Your Letter Before Action Include?
Regardless of which category your debt falls under, your Letter Before Action must contain certain core information.
Essential Elements for All Business Debts
- Identify both parties fully by providing your complete business name, address, and company registration details, plus the debtor’s full business name, registered address, and company number.
- Detail the debt clearly by explaining what the money is owed for, the exact amount due, when payment was due or became overdue, and any interest or additional charges that have accrued under your contract terms or statutory rights.
- State the legal basis for your claim by referencing the specific contract terms, purchase orders, invoices, or statutory provisions you are relying on to establish the debt.
- Provide supporting evidence by attaching or referencing copies of relevant documents, including contracts, invoices, delivery notes, payment applications, correspondence, or other materials proving the debt exists and remains unpaid.
- Set a clear payment deadline and state explicitly that you will commence court proceedings if payment is not received by that deadline.
Additional Requirements for Construction Disputes
Construction disputes require additional information under the Pre-Action Protocol for Construction and Engineering Disputes.
- Identify the principal contractual or statutory provisions you are relying on, such as specific contract clauses or provisions under the Housing Grants, Construction and Regeneration Act 1996.
- Include the monetary value with a proportionate breakdown. Simple for unpaid invoices, more detailed for variations, retentions, and final accounts showing your calculation.
- Name any experts already instructed and identify the issues their evidence will address. Expert evidence is usually unnecessary for straightforward payment disputes.
Keep Your Letter Proportionate
The detail in your letter must match the debt’s complexity and value. A £5,000 unpaid invoice does not warrant the same level of detail as a £500,000 final account dispute.
Costs incurred during the pre-action stage must be proportionate to the amount at stake. Disproportionate preparation or unnecessary expert evidence at this stage may result in cost penalties even if you succeed in your claim.
Timeline and Response Requirements
Construction Disputes:
- 14 days: Recipient acknowledges receipt (or you can proceed to court)
- 28 days: Recipient sends a detailed response, including any counterclaim
- 21 days after response: Pre-action meeting to explore resolution
- Protocol ends after the meeting or 14 days later
General Commercial Debts: Typically 14 days for straightforward cases and longer for more complex disputes. The deadline must be reasonable given the debt’s nature and complexity.
Getting Your Letter Before Action Right
Professional preparation of your Letter Before Action offers significant advantages. It ensures compliance with applicable requirements, carries greater weight and impact with the recipient, and protects your position if court proceedings become necessary.
Courts scrutinise pre-action conduct carefully. Non-compliance can trigger significant cost sanctions, even for otherwise strong claims. A properly drafted letter demonstrates you have acted reasonably and proportionately, which courts expect to see before allowing proceedings to continue.
Our experts can ensure your Letter Before Action is prepared correctly and protects your position from the outset. Contact us today for professional debt recovery support.