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When to send a formal demand letter
A formal demand letter is appropriate once informal chasers — calls, emails, payment reminders — have failed to produce payment or a credible payment commitment. It serves two purposes: it may prompt payment from a debtor who takes formal correspondence more seriously than routine chasers, and it creates a documented record that demonstrates you pursued the debt proportionately before resorting to legal action.
For undisputed B2B debts, a formal demand letter is typically sent 30–45 days after the invoice due date, having already sent at least one payment reminder.
What to include in the letter
- Your company details: Full legal name and registered address.
- The debtor's details: Correct legal name of the debtor company — errors here can create procedural issues.
- Invoice particulars: Invoice number(s), invoice date(s), due date(s), and original amounts.
- Accrued interest: Calculate daily interest at 8% above the Bank of England base rate from the due date. State the daily rate and the total accrued to the letter date.
- Fixed compensation: State the statutory compensation to which you are entitled under the Late Payment Act — £40, £70, or £100 depending on invoice value.
- Total amount now due: The sum of principal, accrued interest, and compensation.
- Payment deadline: A specific date, typically 7–14 days from the letter date.
- Consequence of non-payment: State clearly that you will commence legal proceedings without further notice if payment is not received by the deadline.
Sending the letter and retaining evidence
Send the letter by a method that generates proof of delivery — recorded post, signed-for courier, or email with a read receipt. Retain copies of the letter, the proof of delivery, and all prior correspondence. This evidence is important if you subsequently need to apply to court, and it demonstrates that the pre-action protocol steps were followed.
Address the letter to a named individual if possible — the finance director, company director, or whoever handles accounts payable — rather than a generic accounts inbox. Named recipients are harder to ignore and cannot as easily claim the letter was not received.
After the deadline passes
If payment is not received by your stated deadline, your principal options are: issuing a County Court claim via Money Claim Online for undisputed debts; referring the debt to a specialist B2B debt recovery solicitor; or, for larger debts, considering a statutory demand — the precursor to a winding-up petition. The appropriate route depends on the debt amount, whether the debtor is likely to dispute it, and the debtor's apparent financial position. Confirm the right approach with your solicitor.
Frequently asked questions
Can I claim interest even if my invoices did not mention it?
Yes. The Late Payment of Commercial Debts (Interest) Act 1998 gives B2B creditors the right to statutory interest regardless of whether invoices referenced it, unless you have contractually agreed a different rate. You cannot contract out of the Act entirely.
What if the debtor disputes part of the invoice but not all of it?
You can still pursue the undisputed portion immediately. Issue a formal demand for the amount not in dispute, and separately address the disputed amount — ideally in writing, setting out the basis of the dispute and your response to it. Mixing disputed and undisputed amounts can delay recovery of what is clearly owed.
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