Letter Before Action: Free Template and Step-by-Step Guide

‍‌​‌​​​​​‌​​​‌​‌‌​‌‌‌​​​​​‌‌‌​‌​‍As a sole trader you've actually got some decent teeth: extra interest, fixed charges, and a court process that expects you to give the debtor one clear "last chance" before you sue.

This is for when another business or individual owes you money, you're trading as a sole trader, and they're dragging their heels. You've got two main tools:

• The Late Payment of Commercial Debts (Interest) Act 1998 – 8% above base rate interest plus fixed charges on late business debts.
• The Pre-Action Protocol for Debt Claims – the court's rules for how you must chase individuals/sole traders before you issue a claim.

This is general guidance only and is not legal advice. Always get proper legal advice before sending formal letters or starting a court claim.

1. WHEN YOU CAN USE THE LATE PAYMENT ACT

The Late Payment of Commercial Debts (Interest) Act 1998 ("Late Payment Act") lets you charge statutory interest and fixed recovery costs on certain late commercial debts.

You can usually use it when:

• The debt is under a commercial contract for goods or services.
• The debtor is a business (company, partnership or sole trader) – not a pure consumer.
• There isn't already a "substantial remedy" for late payment in the contract (e.g. a clear contractual interest clause that's fair).

What it gives you:

Statutory interest:

• 8% above the Bank of England base rate for late commercial payments.
• Runs from the day after the payment became due until it's actually paid.

Fixed compensation per invoice:

• Up to £999.99 – £40
• £1,000 to £9,999.99 – £70
• £10,000 or more – £100

Extra recovery costs:

• If your reasonable recovery costs are higher than the fixed sum, you can claim the extra, particularly for legal/admin costs.

You can't use the Act where:

• The debtor is a pure consumer (e.g. Mrs Jones having her bathroom done) – that's a different world.
• The contract already gives a fair ("substantial") remedy for late payment that you've agreed.

2. WHEN A PAYMENT IS OFFICIALLY "LATE"

Under government guidance:

• If you agreed a payment date, the payment is late the day after that date.
• If you didn't agree, default rules say:
  • 30 days for public authorities;
  • 60 days for business-to-business – you can agree longer, but it must be fair to both sides.

Once it's late, you can:

• Start adding statutory interest under the Late Payment Act (if it applies).
• Add the fixed compensation and any extra reasonable recovery costs.

There's a handy online interest calculator from the Small Business Commissioner to work out interest and compensation on overdue invoices.

3. THE PRE-ACTION PROTOCOL – WHEN YOUR DEBTOR IS AN INDIVIDUAL / SOLE TRADER

Because you're a sole trader, if you're chasing an individual (including another sole trader) through court, you must follow the Pre-Action Protocol for Debt Claims first.

This protocol:

• Applies where a business (including a sole trader) is claiming a debt from an individual (including a sole trader).
• Does not usually apply to pure business-to-business debts where the debtor is a company/LLP (those are covered by general pre-action conduct instead).

The Protocol expects you to:

1. Send a detailed Letter of Claim (Letter Before Action) before issuing proceedings.
2. Include:
   • The amount owed and how it's built up.
   • Copies of the contract/quote and key invoices.
   • A statement of account.
   • Details of any interest and charges you're claiming (e.g. under the Late Payment Act).
   • An Information Sheet and Reply Form (set out in the Protocol).
3. Give the debtor 30 days to respond before you issue a claim.

Courts expect you to follow this. If you don't, you can be penalised on costs even if you win.

4. STEP-BY-STEP: CHASING A COMMERCIAL DEBT AS A SOLE TRADER

Check who the debtor is

• Company/LLP or another business?
  • Late Payment Act likely applies.
  • General pre-action conduct, but not the Debt Protocol.
• Individual/sole trader?
  • Late Payment Act may still apply if it's a commercial contract.
  • You must use the Debt Protocol before suing.

Work out the balance, interest and charges

• Principal debt: £[amount].
• Statutory interest (if using Late Payment Act):
  • 8% + base rate from the day after due date until now.
• Fixed compensation per invoice: £40/£70/£100 as appropriate.
• Any extra reasonable recovery costs if they exceed the fixed sum.

Send a firm chasing email/letter (non-protocol) Polite but clear: you set out what's owed, when it was due, and say you'll start adding statutory interest and costs if not paid by a short deadline. Often enough to shake loose cash without going full formal.

If they're an individual/sole trader – send a Protocol Letter of Claim Use the Pre-Action Protocol forms:

• Letter of Claim.
• Information Sheet.
• Reply Form.
• Give 30 days to respond.
• Set out the debt, interest, fixed sums, and how they can pay or propose a plan.

If no sensible response – issue a claim

• Use Money Claim Online / County Court for most smaller debts.
• Keep it proportionate – there's no point spending hundreds or thousands chasing tiny amounts unless you need the principle.

5. WHEN TO GET PROFESSIONAL HELP

Even as a sole trader, you don't have to do this alone. Get legal help when:

• The amount is big for you (say £5k+).
• The debtor is threatening a counter-claim (e.g. saying your work was poor).
• You're unsure about your right to statutory interest or whether your contract already has a "substantial remedy" clause.

A good debt-litigation or construction solicitor can:

• Check whether the Late Payment Act definitely applies.
• Draft a Protocol-compliant Letter of Claim for individuals/sole traders.
• Help you decide if it's worth issuing a claim or better to negotiate.

This page is guidance only and does not constitute legal advice. Using it does not make us your legal adviser. Always get advice from a qualified solicitor or adviser before starting formal debt recovery.

What to do next

• Work out the total owed: principal debt, statutory interest (8% + base rate from the day after it was due), and the fixed compensation (£40/£70/£100 per invoice).
• Send a firm chasing email referencing the Late Payment Act and giving a short deadline to pay.
• If the debtor is an individual or sole trader, prepare a Pre-Action Protocol Letter of Claim with the Information Sheet and Reply Form · give them 30 days to respond.
• If nothing moves, issue a claim through Money Claim Online for most smaller debts.
• Get legal help if the amount is big for you (say £5k+) or if the debtor is threatening a counter-claim.

Sources

• Late Payment of Commercial Debts (Interest) Act 1998 · statutory interest at 8% above base rate, fixed compensation, and recovery costs
• Pre-Action Protocol for Debt Claims · required steps before issuing a court claim against an individual/sole trader
• Late Payment of Commercial Debts Regulations 2013 · updated rules on maximum payment terms and recovery costs

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