Writing a letter before action: samples for pro­fes­sion­al letters re­quest­ing payment

Out­stand­ing claims – also known as out­stand­ing debts – threaten the solvency of a company. The more unpaid customer accounts you have, the greater the liquidity problem. High rates of out­stand­ing debts not only lead to sig­ni­fic­ant interest losses, but if payments end up having to be com­pensated with loans, ad­di­tion­al costs will be incurred. Companies therefore endeavour to collect out­stand­ing payments for services rendered in a timely manner. This is usually done through an out of court dunning process (debt col­lec­tion) in which customers or business partners are informed of their default through reminders, usually in the form of letters. If out-of-court measures do not lead to the desired result, companies may have the pos­sib­il­ity of asserting claims for payment through a court order.

In this article, we will show you how to demand a set­tle­ment for out­stand­ing bills in a pro­fes­sion­al manner, as correct procedure is of central im­port­ance during a dunning process. As a rule, the letter before action is a pre­requis­ite for further legal steps. In addition, judicial disputes can often be avoided by employing a com­mand­ing tone and stressing the im­port­ance of payment through­out the dunning procedure.

The aim of the late payment reminder letter as a tool for managing re­ceiv­ables is to reduce the number of out­stand­ing debts, and to avoid the loss of re­ceiv­ables. At the same time, a pro­fes­sion­al dunning system is also geared towards retaining customers. This should be reflected in the tonality, as well as the number of es­cal­a­tion levels, which we will outline here to demon­strate the business ob­lig­a­tions to partners involved.

The legal basis for out-of-court late payment reminder letters by companies, lawyers, and credit bureaus is found in the Sale of Goods Act 1979 and the Late Payment of Com­mer­cial Debts (Interest) Act 1998 .  Trading Standards oversees the im­ple­ment­a­tion of these reg­u­la­tions. If your dunning procedure is un­suc­cess­ful, and it is necessary to bring your claim to a court, the Small Claims Court handles such matters within the UK.

Central legal concepts within the framework of the dunning system are maturity and default.

The pre­requis­ite for a dunning procedure is a creditor/debtor re­la­tion­ship, pursuant to UK laws, which allow a creditor to demand payment from his debtor for goods or services rendered. This type of debt re­la­tion­ship usually comes about through a contract (e.g. a purchase agreement). The following applies in principle: Missed payments can only be claimed through the dunning system if a claim exists and it can be proven that the claim is due:

If the debtor fails to provide the con­trac­tu­ally agreed upon service until the due date (e.g. 14 days after delivery), then the creditor has the right to demand it.

In the above example, the debtor auto­mat­ic­ally falls into arrears once the due date has arrived. This is a pre­requis­ite for a creditor to assert claims against the debtor on the basis of due payment.

If a debtor is in default of payment, the creditor has a claim for damages (in the form of dunning charges) and interest. A pre­requis­ite for this are cir­cum­stances which may cause delay. This is the case with non-payment, despite the due date and the reminder.

In the above example, the debtor Max Musterman auto­mat­ic­ally falls into arrears because the terms of payment are spe­cific­ally stated with a calendar date (14 days after delivery). It is not necessary for the hardware store to issue an ad­di­tion­al reminder, as Max Musterman already has the time in­form­a­tion in his pur­chas­ing agreement. However, it is common procedure toissue letter before action as soon as the due date has passed, 60 days past due date and 90 days past due date.  

The legal timeframe within an invoice is required to be paid at the dis­cre­tion of the contract between the debtor and the creditor. Should the debtor fail to pay by the specific date set out in the contract, the creditor may then begin the dunning procedure either them­selves, or through a debt col­lec­tion agency.

There is no legal re­quire­ment from the UK gov­ern­ment, or specific protocol outlined in the Sale of Goods Act 1979, that defines exactly how a legal reminder, or letter before action should be for­mu­lated. In fact, the debt collector can also contact the person in written form, verbally, or through con­clus­ive behaviour. However, Trading Standards do recommend to: “Include in the letter all the essential in­form­a­tion: what the job was (invoice reference and date), how much is owed, for how long, and your payment in­form­a­tion.” Whilst it is important to keep the letter as simple as possible, there are a number of aspects that it would do well to include in your letter:

Due to its strong character, the letter before action is the most popular form of cor­res­pond­ence.

The following then applies: A letter before action must be ex­pli­citly titled as such. Ac­cord­ingly, even a par­tic­u­larly polite or humorous demand for payment fulfills the function of the reminder, provided it satisfies the above re­quire­ments. A polite pro­fes­sion­al tone is always re­com­men­ded, as you do not want to tarnish your own repu­ta­tion as a business through impolite or rude cor­res­pond­ence. 

A copy of the invoice may be enclosed with a reminder. In practice, open invoices are sometimes listed directly in the letter of formal notice. This is par­tic­u­larly advisable if there is the pos­sib­il­ity that the debtor has misplaced the invoice, or possibly never received it. A reminder of the payment terms and even a threat of legal con­sequences may be required to increase pressure on the debtors.

In the UK, it is standard practice to send at least one letter, and up to three before taking legal action. Pro­fes­sion­al letter before action templates are a good idea to use, to ensure uni­form­ity and pro­fes­sion­al­ism in your cor­res­pond­ence. IONOS provides a pre-for­mu­lated sample letter for any letters before action you may require as a Word file, or in Excel format.

It is not always the case that out­stand­ing payments are due to the un­will­ing­ness of the debtor to pay. In some cases, re­cip­i­ents have forgotten about the debt and settle the out­stand­ing amounts. In other cases, the invoice may not have been received by the recipient of the invoice. In order to avoid un­ne­ces­sary annoyance by de­fault­ing clients, it is advisable to first remind them of their ob­lig­a­tion to pay. 

You may refer to the IONOS templates when creating late payment reminder letters.

Depending on the severity of the delay and the debt incurred, stronger language may be re­com­men­ded when wording your letter before action.

If the out-of-court dunning procedure does not lead to the desired result, a creditor can obtain legal as­sist­ance by taking the case to the Small Claims Court  or selling the debt on to a debt col­lec­tion agency

Click here for important legal dis­claim­ers.