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What should creditors and debtors know about debt collection letters?
A debt collection letter should be clear, professional, and structured to promote prompt action on the part of your debtor while maintaining a respectful tone. The objective is not just to inform the debtor of their outstanding debt and encourage them to settle the outstanding sum without needing further action.
This guide will explore how to write a debt collection letter, including the debtor's rights and the importance of seeking legal advice as soon as possible.
Click on the links below to jump to that section:
Read about the benefits of debt collection letters
Discover the different debt collection letter types and when which is appropriate.
Find out about the debtor's rights and how to dispute a debt collection claim.
The main considerations to make before sending a debt collection letter.
Read the most common queries on debt collection letters.
How do debt collection letters prompt payment?
Sending a debt collection letter notifies the debtor that action to recover outstanding payments is imminent. It is recommended to send more than one informal notice or statement related to any unpaid debts, providing the chance of avoiding formal or legal action. All communication between the debtor and the creditor should be recorded.
A Letter Before Action (LBA) aims to inform the debtor of any money owed and to establish a date for payment. A payment plan, that staggers instalments if the debtor cannot pay the amount in one lump sum, could be agreed between the debtor and the creditor. There may be reasons for the outstanding payment and why it has not been addressed, which can be resolved by sending a debt collection letter.
The debt collection letter should include:
The amount owed
When the payment is due
Initial due date and a new date instigated by the LBA
Intent to initiate legal action if not paid
Contact details of the creditor
It is important to remember that debts can only be pursued before the limitation period expires, after this the debt becomes statute barred.
The alternative types of debt collection letters
The first step is to ensure that all your communication complies with England and Wales debt collection laws and regulations, including the Financial Conduct Authority (FCA) guidelines and the GDPR for data protection. The tone should be firm but polite, indicating that while you are prepared to take further steps, you prefer a cooperative resolution.
Different types of debt collection letters may be sent to a debtor in various circumstances:
Initial letter
Sending an initial reminder to the debtor may resolve the outstanding debt without escalating to legal proceedings. This is often sent 14 days after the debt's original due date, and does not need to be written formally.
Inquiry letter
Chasing debts can be challenging, particularly if you are concerned that persistence may damage business relationship and your reputation with customers or clients. If there has been no response to previous reminders, an inquiry letter should be sent if there is no response of earlier reminders, keeping the tone neutral and informal.
Appeal collection letter
This debt collection letter should allude to the consequences of not responding to or paying the outstanding debt, including a written notice that further steps are being taken. The debtor should know what will happen if the letter is ignored, and that legal advice will be sought.
Final demand
The final letter acts as an "ultimatum" to the debtor; either they pay the outstanding debt, or legal action will be taken within a certain period of time. The tone differs greatly from previous debt collection letters, as it should be written formally and to the point.
For more information, read our guide on what happens if a debtor ignores requests for payment here.
Letter Before Action (LBA)
This is the last debt collection letter sent, and it informs the debtor that legal proceedings have been initiated. The Letter Before Action (LBA) should include all information on the debt, such as when the goods or services were delivered, how much, and when the initial due date for the outstanding payment.
LBA should include phrasing explaining that "despite several reminders", the debt has not been settled and, therefore, will be passed to a legal professional.
It is advisable to instruct a debt collection lawyer to ensure that you are complying with the law. Also, the reminders and formal notices should be clear and to the point, so that the debtor understands exactly what is required of them. The letter should be personalised to the specific individual.
Can a debtor dispute a letter before action?
The debtor has the right to dispute the claim via a debt validation letter, which should be sent within a given time frame. A debtor should respond as soon as reasonably possible after receiving a debt collection letter. Typically, this is within 14 days to avoid sending any more letters or reminders being sent.
A response to a debt collection letter should be made if the debtor wants to propose how and when the payment will be made or a payment plan is completed. To dispute the claim, the debtor should respond with a reason for not paying, for example, if the goods or services provided were of low quality.
For more advice, debtors should seek help from Citizens Advice.
Read more about our litigation and dispute resolution services, or contact Giambrone & Partners to request a callback.
What to consider before sending a debt collection letter
Before you send a debt collection letter, it is essential to assess the situation thoroughly to decide the best course of action.
First, review the history of your interactions with the debtor. Consider any previous communications, if there were any past defaults, and the reasons provided for non-payment. Understanding the context of the debt can influence how you approach the situation.
Evaluate the size of the debt and its impact on your business. The cost of pursuing legal action might outweigh the benefits of pursuing smaller debts. In such cases, alternative dispute resolution methods or writing off the debt might be more practical.
Businesses may be more inclined to consider mediation instead of initiating legal proceedings. If both sides agree, a professional mediator can be appointed to attempt a settlement, rather than going to court.
Most importantly, it is crucial to seek legal advice from an experienced debt collection lawyer as soon as possible who will be able to guide you through every stage, and offer the best way to proceed based on their expertise in recovering debts.
If your business is owed debts or would like more information on debt collection, contact Giambrone & Partners' debt collection lawyers today.
Frequently asked questions
Are there any alternatives to a Letter Before Action?
One effective alternative is a Late Payment Demand. This approach is specifically useful under the Late Payment of Commercial Debts (Interest) Act 1998, which allows a creditor to claim interest, compensation, and reasonable debt collection costs. However, it is important to note that this option is only applicable when both parties involved are businesses.
This alternative can serve as a formal but amicable reminder to settle outstanding debts and can help maintain business relationships while ensuring that creditors receive due compensation for late payments.