The short answer: when polite reminders have run out, a letter before action is the formal step before court. It states what is owed and gives a deadline to pay. On a business-to-business debt you are also entitled to statutory interest of 8% plus the Bank of England base rate, running from the day after payment was due, and a fixed compensation sum.
What statutory late-payment interest is
Under the Late Payment of Commercial Debts (Interest) Act 1998, a business chasing another business for a late commercial debt is entitled to charge statutory interest at 8% plus the Bank of England base rate per year on the overdue amount. The interest runs from the day after payment was due. Because the base rate changes, this page does not quote a single current figure, work out exactly what you are owed with the late-payment interest calculator, which uses the live rate.
The fixed compensation you can add
On top of the interest, the Act lets you claim a fixed sum for the cost of recovering a late commercial debt, set by the size of the debt:
- £40 for a debt under £1,000
- £70 for a debt of £1,000 to £9,999.99
- £100 for a debt of £10,000 or more
If your reasonable costs of chasing the debt come to more than the fixed sum, you may be able to claim the difference as well.
What a letter before action is
A letter before action, also called a letter before claim, is a formal written demand for payment within a set period before you start a county court claim. It is part of the pre-action protocol, the steps the courts expect you to take before litigating, and skipping it can count against you later. A clear letter before action often gets a stalled payment moving on its own, because it shows the client you are ready to follow through.
What to put in it, and how long to give
A letter before action should set out who owes what and why: the invoice number and amount, the date it fell due, any interest and compensation you are adding, and a clear deadline to pay or respond, commonly seven to fourteen days for a straightforward business debt. State what you will do if the deadline passes, and then follow through, an ignored deadline weakens everything after it. Keep it factual and calm rather than threatening.
Where Kelo fits
Most invoices never need any of this, a good reminder cadence clears them. Kelo is built for that everyday chasing: it drafts each reminder in your voice for you to approve and send. For the persistent tail that ignores the reminders, Kelo surfaces the statutory interest you are owed and can draft a letter before action, approval-first, so you never send anything you have not read and signed off. It connects read-only to Xero or QuickBooks, so nothing changes in your accounts. Before it comes to a letter, work through the payment reminder email templates and the full guide to getting paid.