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Letter Before Action (LBA)

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How and When to send a Letter Before Action to your Customer/Debtor.

A Letter Before Action (LBA) is a formal letter which can either be delivered by via paper format (postal service) or electronically i.e. by email which formally requests payment of a debt, for instance an overdue invoice and warns the customer/debtor of the imminent issue of a court claim which can ultimately end up with a county court judgement CCJ being registered against them.

 

Despite the severity and formal nature of the an LBA, it should always be kept firm, fair and polite without using threatening or punishing language. It is important to get the balance right when sending an LBA as using reckless empty threats can actually do harm to your claim when presenting evidence in court.

Whilst there is no requirement to use a solicitor or debt recovery specialist to send an LBA, it is always encouraged to do so as they can provide a clear framework, correct terminology and context in pursuit of recovering monies owed. What's more debtors are much more likely to respond when they realise a professional third party is dealing with the debt on your behalf.

*Please Note that If your debtor is a sole trader (or individual) then you must adhere to the Pre Action Protocol for Debts Claims and can longer send a standard Letter Before Action.

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You can also use the Letter Before Action to include added late fee compensation, interest and admin costs so your customer i.e. the debtor understands exactly how much is owed. Always provide an ‘olive branch’ too and grant clear opportunities to make payment or discuss the issue - it is important not to turn a customer/debtor into an enemy.

 

At this point you should be always constructive in your approach in wanting to reach a resolution. Whilst you may have legitimate reasons not to remain fair and friendly, and every fibre of your being may want to chastise your debtor for not paying and putting your business at risk, it is always recommended to remain balanced, reasonable, polite and calm in all your correspondences to your debtor. By not doing so you are providing them with opportunities to try and justify their actions and potentially invoke a degree of sympathy if/when contesting it in the courts.

 

Always remember, that if your claim is justified, accurate and proper then in most cases the law will side with you – there is no need to provide cheap “give-aways” to your debtor. And despite how bad the circumstances are now, you may well one day wish to do business again with your debtor so it is always better not to sour any business relationship – simply remove all emotion from the process and deal with the facts.

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A Letter Before Action clearly sets out what is owed to your business from a customer/debtor and provides a set time period in which to make full payment. 7 days is usually the standard number of days to pay – Afterall at this point they will already have had 30 days to pay the initial invoice, 21 days to pay the invoice + late fees and now a further 7 days after the LBA. If After 7 days they still have not paid then we recommend sending 2 further reminders on the 10th day and 14th day giving them another weeks grace before you escalate this to the next stage.

An LBA is a fundamental requirement for the debt recover process and must be issued before legal proceedings can be initiated – if it is not then costs may be forfeited and you could end up paying legal costs on behalf of your debtor.

The majority of customer/debtors which receive an LBA usually tend to make full payment upon receiving it, especially when the LBA has come from a formal third party as they understand the severity of the situation and that you are very serious about retrieving monies what is rightfully owed to you. Unfortunately however, there are some businesses which despite receiving a Letter Before Action simply ignore this and allow the matter to escalate to the Courts. At this point it is important to take stock of the situation and not simply go on a crusade to retrieve monies owed as it may be a clear sign that your business customer simply doesn’t have the ability to pay.

 

Whilst this may seem defeatist, it may prove more costly in time, resources and money trying to essentially “flog-a-dead-horse.” If your business customer for instance has numerous CCJ’s registered against them for previous non-payment, a bad credit history or a litany of disgruntled business suppliers this may be a warning sign not to take matters further.

 

However, we would always suggest reviewing the situation and base some of your decision on whether

a) have the patience, resilience and tenacity to pursue debtors in the courts

b) whether it will be to the detriment of providing your goods and services to other business customers i.e. ensure you don't loose focus on your main priorities

c) that your are happy potentially spending more money in court costs, legal fees and except the risk (however small) that you may not win in court and potentially have to pay debtor fees.

An alternative to court action is to offer mediation, this can be done by arranging a face-to-face meeting with your business customer and involving a third part mediator who can help reach a compromise. Whilst mediators do cost money, it is usually much less expensive then proceeding with court action and can prove much quicker in reaching a resolution. Although you may have to be prepared to write off a portion of the value of the outstanding debt and receive the balance in instalments.

Whilst you can simply decide that a verbal agreement or handshake is sufficient when agreeing to a deal, it is always encouraged to get a written settlement agreement. This will form a contract if legal action has not already commenced. If however you have started legal action then a written agreement can be signed and sent to the court who can make it an official court order which can be upheld.

What an LBA should include

Business names and addresses for you and your customer

Details of the goods or services that they owe you for

How much they owe you, including any interest and compensation

The calculation of what they owe you calculated the amount owed

A detailed timeline of actions already undertaken to reach out to the business customer. what you’ve already done to try to get the money

Dated copies of any relevant documents, for example purchase orders, invoices and statements

 

A reasonable deadline for paying or responding (at least 14 days)

The consequences of what will happen if they don't pay or fail to respond e.g. taking debtor to court to outstanding debt plus additional fees which will be incurred. 

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