What Happens After I Send A Letter Before Action (LBA)?
Understanding the consequences and options available after sending an Letter Before Action can make all the difference in recovering your late payments efficiently. Let’s delve into what follows once an LBA has been issued.
What is an Letter Before Action?
A Letter Before Action (LBA) is a formal letter of demand sent to your debtor seeking payment of any outstanding sums due to you. It also puts debtors on notice that if payment is not made within a specified period of time you intend to issue legal proceedings.
This gives the debtor a final chance to settle the debt before facing potential legal action for the recovery of the outstanding sums, together with costs and interest.
At Lovetts, we have seen 86% of our clients overdue invoices have been paid upon receipt of our LBA, without any further legal action required.
What happens when my Letter Before Action expires?
If you send a Letter Before Action to your debtor, but payment is not made the next stage of the legal process would be to issue legal proceedings through the County Court. Once the claim is issued by the Court it will be served on the debtor who will have 14 days to file a response to the claim.
If the debtor fails to file a response to the claim within 14 days, you can apply for judgment in default. The Court will then process this request and issue a County Court Judgment (CCJ).
A County Court Judgment (CCJ) is a Court Order that says the debtor owes you the specified sum. Once you have obtained the CCJ you can then seek to enforce the judgment by a number of different methods.
The CCJ will be recorded against the debtor’s credit record affecting their ability to obtain credit for a period of up to six years, unless the debtor pays the judgment in full within one month of the judgment being entered against them.
What interest can I claim for late payment?
In the first instance you should check the terms of the contract between the parties. There is usually a provision for interest in respect of late payment of invoices within most terms and conditions, where these have been agreed.
If no contractual provision has been agreed for interest you may still be able to seek interest on a statutory basis under Late Payment provisions for commercial debts or under s69 of the County Courts Act 1984 where debtors are individuals.
If your debtor is a business you may be entitled to seek Late Payment Compensation, Late Payment Interest or Reasonable Legal Costs where the Late Payment of Commercial Debts (Interest) Act 1998 applies (“Late Payment Act”).
The Late Payment Act will only apply when dealing with late payments if there is no contractual provision agreed within the terms of the contract between the parties and both parties are businesses.
If the Late Payment Act does apply, you will be able to seek fixed Late Payment Compensation in the sum of £40, £70 or £100 per invoice, depending on the value of the same. You will also be able to seek Late Payment Interest, at a rate of 8% above the Bank of England base rate, together with reasonable legal costs. Reasonable legal costs are only usually awarded if the compensation and interest do not cover the full amount of your costs of any recovery action.
If your debtor is an individual and there is no agreed rate of interest payable under the terms of the contract, you may still be entitled to seek interest under s69 of the County Courts Act 1984, at a rate of 8% per annum in respect of the overdue sums.