Businesses rely on regular steady cash flow to operate smoothly, and unpaid invoices can create major financial setbacks. Recovering debts from your customers not only creates a strain on your working relationship but can threaten the solvency of your business. 
According to Apollo business finance, UK small businesses are owed a whopping £22,000 in overdue payments and between June 2023 and June 2024 nearly 50% of all invoices sent by small business were paid late. 
 
What can you do if your customers don’t pay? 
 
There are certain informal steps you should take first which include sending regular payment reminders, communicating with your debtors by email and phone calls to encourage payment. If all such attempts have failed, then you can commence formal debt recovery. 
 
A Letter before action (LBA) is a formal demand for a debt to be paid. It is a legally required document that must be sent before any court claims can be made. 
It is important to note that before a LBA can be issued, you have attempted to resolve this matter with your debtor and kept records of all the correspondence. 
In the majority of cases a LBA is often deemed serious enough to prompt payment of the debt, either by a pre-agreed settlement plan or payment in full. 
The Civil Procedure Rules which govern court proceedings in England and Wales, require the sending of a LBA as part of the pre-action conduct before a claim can be brought. Whilst you can send the LBA yourself, often a Legal representative will draft these ensuring that all the correct information is contained within. The letter will set out a due date for payment and if this is passed without payment being received then the next stage is applying for a court hearing. 
 
I received A LBA, what should I do? 
 
You must firstly acknowledge receipt of the letter within the time frame set out and consider how you wish to proceed carefully. 
You can settle the demand and reach an agreement without court intervention, or you can dispute the LBA and write a comprehensive response to each issue raised within the LBA, including any supporting evidence you may have. You can also propose other methods to resolve the issue, such as mediation, but everything should be clearly set out in your response. 
 
Any company facing financial problems, no matter which side of the fence you sit, should seek professional advice. If you require any help or advice, please give us a call to get the best outcome possible. 
 
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