A letter before action (LBA) is a letter warning your customer that court proceedings will be started without any further notice if the debt is not paid.
As legal action is the last resort, the court will expect you to try and find another way of reaching an agreement before issuing a legal claim, e.g. through Mediation.
Therefore, you must send a formal LBA to a debtor to give them one last chance to settle the matter.
This will be the case even if you have already written to your customer about the outstanding invoices, you will need to start by sending a LBA.
From 1st October 2017, there is a new Pre-Action Protocol for Debt Claims to follow.
The changes revolve around increasing the amount of information shared between parties, to a sufficient enough level so that the parties can understand each other’s position and try and come to an agreement without court action.
What changes have to be made to the LBA?
You are now additionally required to include in the letter:
• up to date financial information including details of any interest and administrative charges added;
• details of the agreement under which the debt is payable including who made the agreement, whether it was written or verbal and the date it was made. It also needs to be stated that further information or a copy of the written agreement can be made available to the debtor upon request;
• payment details including the method of and address of payment, and details on how the debtor should proceed if they wish to discuss payment options;
• an enclosed Reply Form, Information Sheet and Financial Statement Form, all of which have been provided for use in the protocol itself;
• a reply address where the debtor is directed to send the Reply Form.
The letter should be clearly dated and posted within a day of the date stated, and it must be sent by post unless the debtor has explicitly requested it be sent by an alternative method.
As you will notice, the whole procedure has been overhauled in order to nurture communication between parties with the aim of avoiding court action being taken.
This means creditors may have to wait up to 60 days to file a claim, alongside having to do a great deal more administrative work in preparation.
The court will take into consideration any non-compliance and may penalise a party that doesn’t substantially follow the protocol.
For example, a successful creditor might not be awarded part or even all its costs.
However, in relation to other protocols, the court has usually looked at whether a failure to follow the protocol made any real difference and doesn’t usually like parties playing games with the protocol procedure.