At some stage, most businesses will encounter problems with late or non-payment of debts. Despite exhausted in-house credit control systems, sometimes debts can remain outstanding, and managing debts owed to your business can often be a time-consuming task. Stephensons offer a simple debt recovery fixed fee service to assist you with your debt recovery processes.
In this article, we examine the first step of that process: the Letter Before Action.
What is a letter before action?
A letter before action, also known as a pre-action letter, is the first formal communication sent to debtors to seek recovery of a debt; it is legally required before issuing a claim in the County Court.
The letter goes beyond a simple explanation of the facts, as it must clearly set out:
- The amount you are claiming and the date the payment was due by
- Any applicable interest or compensation payments
- Information relating to the contract or agreement to which the debt relates (if applicable)
- How payment is to be made and where to
- The deadline for payment to be made to avoid court action
Why is a letter before action a legal requirement?
The civil procedure rules (CPR), which are a set of rules governing conduct to civil litigation, provides for a number of “pre-action protocols”, which set out the steps parties must take before initiating a claim at court.
The pre-action protocol requires a letter before action to be sent, these letters allow the parties to understand each other’s position, assist them in making decisions as to how best to proceed, and potentially consider any other methods of dispute resolution thereby reducing the cost of disputes.
The courts can be critical of claimants where they have failed to send a letter before action without good reason and courts have a wide range of tools available to it to sanction parties who fail to engage in this critical step, such as penalising the claimant as to recovery of its costs, even if it is successful at trial.
When should a letter before action be sent and what happens after it is sent?
If you have exhausted your internal debt recovery processes and payment is still not forthcoming, you should act quickly to send a letter before action.
Once the letter is sent, the debtor will usually have between 14 and 30 days in which to respond depending upon whether they are an individual or a company.
If the letter is ignored, or no payment has been made, the next step would be to either send a final demand letter, or to commence court proceedings. Proceedings can often be time-consuming and expensive, so a final demand can sometimes offer a “last chance” for the debtor to respond, before being faced with litigation.
If a final demand letter is sent, and no response is forthcoming then court proceedings are inevitable; however, the debtors conduct in failing to respond can sometimes be viewed negatively by the court and the debtor may be penalised by it accordingly.
How we can help
Letters before action are a key tool in the debt recovery and litigation process. Aside from being a legal requirement, the information exchanged assists parties to properly assess the merits of their case. Many disputes can be and are resolved at the letter before action stage.
Our debt recovery team are able to assist you with preparing the letter on your behalf, ensuring it complies with any pre-action protocol, to help you present your case in the most robust manner to seek an efficient and effective solution with your debtors. Contact us today on 0161 696 6170 to speak with one of our specialists.
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