Letter Before Action: Business-to-Business Dispute (2026 Guide)

When Do You Need a Letter Before Action (B2B)?

You need to send a Letter Before Action in a business-to-business context when:

• A business owes your business money — whether for goods supplied, services rendered, or any other contractual obligation — and has failed to pay within the agreed or reasonable period.
• You have already chased payment informally — by phone, email, or standard invoice reminders — and the debtor has either ignored you, made excuses, or refused to pay.
• You are prepared to issue court proceedings if the debt is not paid. The Letter Before Action is the final step before you file a claim.
• The debt is a liquidated sum (a specific amount that can be calculated) or you can quantify the damages you are claiming.
• Both parties are acting in a commercial capacity — this guide covers disputes between businesses, not disputes between a consumer and a trader (for those, see the consumer Letter Before Action guide).

The Practice Direction on Pre-Action Conduct and Protocols requires all parties to civil proceedings to take reasonable steps to resolve the dispute before issuing a claim. For debt claims specifically, the Pre-Action Protocol for Debt Claims 2017 sets out the minimum steps. While this protocol was primarily designed for consumer debt claims by creditors, the Practice Direction on Pre-Action Conduct applies to all civil claims, including B2B disputes, and the principles are the same.

What a B2B Letter Before Action Involves

A properly drafted Letter Before Action in a business dispute sets out:

• The identity of the creditor — your business name, registered number (if a company), and registered office or principal address.
• The identity of the debtor — the full legal name of the business that owes the money. If it is a limited company, use the exact name on the Companies House register and address the letter to the registered office.
• The contractual basis for the debt — the contract, purchase order, invoice, or agreement under which the money is owed. Include dates, reference numbers, and the specific terms that have been breached.
• The amount claimed — the principal debt, broken down by invoice if there are multiple unpaid invoices.
• Statutory interest — if applicable, a statement that you are claiming interest under the Late Payment of Commercial Debts (Interest) Act 1998 and the calculated amount of interest accrued to date.
• Compensation for late payment — a fixed sum that you are entitled to claim under the 1998 Act in addition to interest (see below).
• The total amount due — the principal debt plus interest plus fixed compensation.
• A deadline of 14 days for the debtor to pay in full or propose a reasonable resolution.
• A statement that court proceedings will follow if the deadline is not met.

The Late Payment of Commercial Debts (Interest) Act 1998

This statute is one of the most powerful — and most underused — tools available to businesses chasing unpaid invoices. It applies automatically to contracts for the supply of goods or services where both parties are acting in the course of a business, unless the contract contains a substantial contractual remedy for late payment that is fair and proportionate.

Statutory Interest Rate

The Act entitles you to charge interest on the outstanding debt at a rate of 8% per annum above the Bank of England base rate. As of early 2026, the base rate is 4.5%, giving a statutory interest rate of 12.5% per annum. This rate is fixed at the reference date (the last day of the relevant six-month period — 30 June or 31 December — before the debt became due).

Interest runs from the day after the agreed payment date. If no payment date was agreed, it runs from 30 days after the later of (a) the delivery of the goods or performance of the services, and (b) the date the debtor received notice of the amount claimed (i.e., the invoice).

Fixed Compensation

In addition to interest, the Act entitles you to claim a fixed sum as compensation for the cost of recovering the debt:

These sums are per invoice, not per claim. If you are owed money on three separate invoices, you can claim the fixed compensation three times.

Reasonable Recovery Costs

If your actual costs of recovering the debt exceed the fixed compensation, section 5A of the Act allows you to claim the difference as a reasonable cost of recovery. This could include the cost of instructing a solicitor to send a formal demand, or the cost of using a debt recovery service.

How to Write a B2B Letter Before Action: Step by Step

1. Confirm the Debtor’s Legal Identity

Before you draft the letter, verify the exact legal name and registered office of the debtor. Search Companies House. If the debtor trades under a name different from its registered company name, use the registered name in the letter and note the trading name. If you get the name wrong, any court proceedings you issue may be invalid.

If the debtor is a sole trader or partnership, establish the individual’s name and principal place of business.

2. Collate All Supporting Documentation

Gather every document that supports your claim: the contract or terms and conditions, purchase orders, delivery notes, completion certificates, invoices, correspondence chasing payment, and any responses from the debtor. Organise these chronologically. You do not need to enclose all of them with the letter, but you should be ready to provide them if the debtor disputes the claim.

3. Set Out the Background

Open the substantive part of the letter with a concise factual summary. State the nature of the business relationship, the date and terms of the contract, what goods or services were supplied, when they were delivered or performed, and when payment was due.

For example: your company supplied industrial cleaning equipment to the debtor under a written contract dated 5 November 2025. The goods were delivered on 20 November 2025 and accepted without complaint. Invoice number INV-2025-0847, dated 20 November 2025, for £12,400.00 plus VAT (total £14,880.00), was due for payment within 30 days — that is, by 20 December 2025. Payment has not been received despite reminders sent on 3 January 2026 and 20 January 2026.

4. State the Legal Basis

In a straightforward debt claim, the legal basis is usually breach of contract — the debtor agreed to pay and has not done so. If the contract was oral rather than written, say so and summarise the key terms.

If you are also claiming interest under the Late Payment of Commercial Debts (Interest) Act 1998, state this explicitly. Identify the relevant statutory provisions and provide the calculation:

• Principal debt: £14,880.00
• Daily interest at 12.5% per annum: £5.10 per day (£14,880.00 x 12.5% / 365)
• Interest accrued from 21 December 2025 to the date of the letter (for example, 112 days): £571.20
• Fixed compensation under the Act: £100.00
• Total claimed: £15,551.20

Show the working. If the court sees that you have calculated the interest correctly, it reinforces the seriousness and accuracy of your claim.

5. Specify the Total Amount Claimed

Set out the total figure clearly, broken down into principal, interest, and fixed compensation. If there are multiple invoices, list each one separately with its own interest calculation and fixed compensation entitlement.

6. Set the 14-Day Deadline

State that the debtor has 14 days from the date of the letter to pay the full amount claimed or to contact you with a substantive proposal for resolution. The 14-day period is consistent with the Pre-Action Protocol for Debt Claims and with what courts generally regard as reasonable in commercial disputes.

Make clear that if no response is received, or if the response does not resolve the claim, you will issue court proceedings without further notice.

7. Mention Alternative Dispute Resolution

The Practice Direction on Pre-Action Conduct requires parties to consider whether ADR — such as mediation or a without-prejudice negotiation — could resolve the dispute. State in the letter that you are willing to consider ADR if the debtor engages constructively. This protects your position on costs if the matter goes to court.

8. Send by Recorded Delivery

Send the letter by Royal Mail Signed For to the debtor’s registered office (if a company) or principal place of business. Keep the proof of posting and delivery confirmation. You may also send a copy by email to ensure the debtor receives it promptly, but the posted letter is the primary record.

Key Deadlines

What Happens After You Send the Letter

The debtor pays in full. The matter is resolved. If you claimed statutory interest and compensation in the letter, you are entitled to insist on payment of those sums too, though in practice many creditors accept the principal alone to close the matter quickly.

The debtor responds and disputes part or all of the claim. Read the response carefully. If the debtor raises a genuine counterclaim or defence (for example, that the goods were defective), you must consider this before proceeding. If the dispute is about the quality of goods or services rather than the existence of the debt, the matter may not be suitable for summary resolution and you should consider whether mediation could help.

The debtor proposes a payment plan. You are not obliged to accept instalment proposals, but if the debtor is genuinely unable to pay in full immediately, a structured payment arrangement may be more commercially realistic than litigation. Get any agreement in writing.

The debtor ignores the letter entirely. After 14 days, you can issue proceedings. The debtor’s failure to engage will be noted by the court. If you then apply for default judgment (because the debtor also fails to file a defence), the court is likely to grant it without difficulty.

Common Mistakes to Avoid

1. Addressing the letter to the wrong entity. If the debtor is “ABC Services Ltd” and you write to “ABC Services,” you may have written to a non-existent entity. Always use the registered company name from Companies House.
2. Failing to calculate interest correctly. If you claim statutory interest, the calculation must be right. An incorrect figure undermines your credibility and may result in the court awarding less than you are entitled to.
3. Not including the fixed compensation. Many businesses do not realise they are entitled to the £40, £70, or £100 fixed compensation under the Late Payment Act. It is a statutory right — claim it.
4. Sending the letter by ordinary post only. Without proof of delivery, the debtor can claim it never arrived. Always use Signed For delivery.
5. Using inflammatory language. Calling the debtor dishonest, incompetent, or worse will not help your case. The court will see the letter. Keep it professional, factual, and measured.
6. Issuing proceedings before the 14 days expire. The court may stay your claim and order you to comply with the pre-action protocol. This delays the matter and may result in adverse costs consequences.
7. Forgetting to mention ADR. The court expects both parties to have considered alternative dispute resolution before litigating. A letter that makes no mention of ADR may attract criticism from the judge at a costs hearing.
8. Claiming interest you are not entitled to. The Late Payment Act only applies to commercial contracts between businesses. If you are a consumer, or if the debtor is a consumer, the Act does not apply. Check the status of both parties before including a statutory interest claim.

The Rules That Apply

• Late Payment of Commercial Debts (Interest) Act 1998 — gives businesses the right to claim statutory interest (8% above base rate) and fixed compensation on late-paid commercial debts.
• Practice Direction on Pre-Action Conduct and Protocols — requires all parties to civil proceedings to take reasonable steps to resolve the dispute before issuing a claim, including exchanging information and considering ADR.
• Pre-Action Protocol for Debt Claims 2017 — sets out the specific steps for debt claims, including the 14-day response period.
• Civil Procedure Rules Part 7 — governs the issue of proceedings once the pre-action stage is complete.
• Limitation Act 1980 — sets the time limits for bringing a claim (6 years for simple contracts, 12 years for deeds).
• Companies Act 2006 — requires registered companies to display their registered name and number, and governs service of documents at the registered office.

Related Court Forms & Guides

• Form N260: Statement of Costs — the costs schedule used at summary assessment.
• Form N244: Application Notice — the form for interim applications.
• Start a Money Claim Online (OCMC) — where most civil money claims begin.
• Particulars of Claim — setting out the basis of your claim.
• Civil Court Forms Index — every civil court form guide in one place.

How Chris Can Help

Drafting a Letter Before Action that is legally accurate, properly calculated, and compliant with the pre-action rules takes precision. Chris drafts your B2B Letter Before Action using the facts you provide, ensuring the statutory interest calculation is correct, the fixed compensation is included, the legal basis is properly stated, and the letter follows the format the court expects. Chris also calculates the daily interest figure so you know exactly how much the debt is growing while it remains unpaid.

Chris flags any issues that could complicate your claim — for example, if the contract contains a clause excluding the Late Payment Act, if there is a potential set-off or counterclaim, or if the limitation period is approaching. You review the letter, amend it if you wish, and send it yourself. Chris does not send correspondence on your behalf.