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.