If a customer hasn’t paid you on time, sending a debt collection letter is often used to recover an outstanding debt. This letter serves as a formal reminder, outlining the exact amount due, the payment deadline, and the action you may take if the debt isn’t cleared.
For small business owners and freelancers in the UK, a well-written debt collection letter can save time, protect cash flow, and avoid the need for costly legal proceedings. On this page, you’ll find free downloadable templates, examples, and step-by-step guidance to help you write an effective debt collection letter.
When there are outstanding overdue invoices, it is essential to ensure you have followed credit control procedures before taking further action. Credit control involves sending a statement of account, letter, or email, which provides a clear record of your attempts to recover the debt.
If payment is still outstanding, send a debt collection letter clearly stating the company details, phone number, outstanding amount, and indicating that court proceedings may be taken.
If the customer is an individual or self-employed, you must follow the Pre-Action protocol. The information below is for business-to-business.
What is a Debt Collection Letter?
A debt collection letter is a formal written notice sent to a customer or client who has not paid their invoice on time. It serves as:
- A reminder of outstanding debt.
- A record that you have tried to collect the debt before taking further action.
- A warning of possible next steps, such as passing the debt to a collection agency or starting legal proceedings.
In the UK, a debt collection letter is often the final step before legal action, also known as a “letter before action”. Writing one shows that you are serious about recovering the money while still giving the debtor a chance to settle the debt.
When to Send a Debt Collection Letter
A debt collection letter is usually sent after you’ve tried other reminders and the customer still hasn’t paid. It’s part of a step-by-step credit control process:
- Send Account Statements – Regular monthly statements remind customers of their outstanding balances and help prevent missed payments.
- Initial Reminder – A polite email or phone call a few days after the due date.
Example: “Just checking if you’ve had a chance to process invoice #123.” - Second Reminder – A firmer follow-up within 7–14 days of the outstanding payment.
Example: “Our records show this invoice is still outstanding. Please arrange payment as soon as possible.” - Final Demand – Often a last email or statement before a formal letter for the outstanding payment.
This makes it clear that the account will be escalated if payment isn’t made. - Debt Collection Letter – Sent when previous reminders have been ignored. It formally demands payment and sets a deadline.
- Letter Before Action (LBA) – In the UK, this is usually a 7-day or 14-day letter stating that court action or debt recovery will follow if the debt isn’t settled. It will also include reasonable debt collection costs and claim interest.
Following these steps in order helps you maintain good customer relationships and demonstrates that you’ve been reasonable if you need to take legal action later.
How Accounting Software Can Help with Debt Collection
Modern accounting software such as Sage UK, Xero and QuickBooks makes it much easier for small businesses to stay on top of overdue payments. Instead of manually tracking invoices or drafting letters from scratch, you can automate much of the debt collection process. Here is how accounting software can help your business.
Customer Statements
The first course of action would be to send out a customer statement at the end of each month. The statement will display all outstanding invoices that are due for payment. The total outstanding debt, along with a breakdown by month.
Automatic Payment Reminders
Set up reminders to be sent at specific intervals — for example, 7, 14, or 30 days after an invoice becomes overdue.
This keeps communication consistent and reduces the need for uncomfortable follow-up calls.
Customisable Message Templates
Most accounting systems let you create personalised debt collection or overdue invoice templates.
These can include your company branding, tone of voice, and details such as invoice number, balance due, and payment link.
Accurate Customer Records
Every reminder, payment, or note is stored in your customer’s record, providing a clear audit trail if you ever need to escalate the matter.
You can quickly see which clients regularly pay late and adjust credit terms accordingly. Below is an example of a customer in Xero. It shows the outstanding debt, invoices and a history of transactions on the account.
Professional Communication
Automated reminders and debt letters sent directly from your software look professional and are less likely to be ignored.
Including an online payment link also makes it easier for customers to pay immediately.
Reports and Insights
Use built-in reports such as Aged Receivables to identify overdue accounts, track outstanding amounts, and forecast cash flow.
This helps you stay proactive and reduce late payments over time.
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14-Day Collection Letter
The debt collection letter is now referred to as a letter before claim.
Before drafting and sending a debt collection letter, it’s crucial to ensure that all possible measures to recover the debt have been exhausted. This includes making multiple attempts to contact the debtor, offering a payment plan or negotiations, and clearly documenting all communications and attempts made to collect the outstanding debt. Only after these steps have been thoroughly undertaken should a debt collection letter be considered as the next course of action..
Debt collection has evolved significantly. In the past, businesses typically allowed customers a 7-day period to settle outstanding dues after receiving a collection letter. However, the rules have undergone significant changes. Currently, it is mandatory to extend a 14-day notice period to customers who have failed to settle their accounts within the agreed-upon credit terms. This adjustment gives customers additional time to organise their finances, ensuring that businesses adhere to fair practices while managing their receivables.
Before sending a payment reminder, ensure you have taken all available credit control steps to collect the money. It includes telephone calls and sending out customer statements and letters.
You should send only one final chase reminder that clearly states the course of action if payment is not received by the deadline set out in the letter. Sending a 14-day letter should always be a last resort.
It is worth considering if this is the right course of action, especially if you wish to continue doing business with this customer. You must also be prepared to take legal action if the balance remains unpaid after 14 days. Remember that taking legal action for late payment can negatively impact their credit rating.
If you still have non-payment, you can start legal action, go to Money Claim Online if the amount is below £100,000. It is a straightforward process, but it will still take the customer time to settle the payment with you. You will have to pay the court fees, but that is part of the claim that your customer will pay if you are successful with the claim.
Debt Collection Letter Wording
Below is the wording we used in our letter before the action template to collect outstanding monies. You may wish to change it.
Your account is now seriously in arrears. Despite previous requests, we still have not received your payment of (Enter amount).
If payment of (Enter amount) is not received in the next fourteen days, we will have no alternative but to take legal action, which will incur both legal costs and interest to you.
If payment has been made in the last few days, please disregard this reminder.
Debt Collection Letter Instructions
- Download the free template using the link at the end of this page
- Open the letter in Word or an alternative word-processing program that you use
- Enable editing of the document
- Enter the company name, address, and contact details at the top.
- At the bottom, enter your name, title and company name.
- Save this as a template to use for further letters
- The date is automatically updated
- Enter Customer details
- Complete the reference details and include as much information as possible
- Enter the amount that you are claiming
- Save the letter as a separate file
- Print, sign and send the debt collection letter with a statement of account listing the outstanding invoices to the customer
Debt Collection Agency
There are debt collection agencies that can send a debt collection letter on your behalf and take legal action. When they collect the money, you will have to pay them a percentage of the amount recovered. It can alleviate the stress of chasing clients for money, but you will ultimately have less money in the end.
If they can’t collect the debt, they can proceed with court action, which will incur additional court costs.
Download our free Debt Collection Letter Template UK
Download our free debt collection letter. By downloading this letter, you agree to our licence agreement.
Further information on small claims can be found on the money claim online website.
Debt Collection FAQ
Can I email a debt collection letter?
Yes, you can send a debt collection letter by email, post, or both. Posting a hard copy is often recommended as it provides more substantial evidence if the matter goes to court.
Is a debt collection letter legally binding?
No, the letter itself is not legally binding. However, it shows that you have given the debtor fair warning before taking further steps, which is vital in the UK legal process.
Can I charge interest on overdue invoices?
Yes, under the UK Late Payment of Commercial Debts (Interest) Act 1998, businesses can usually charge statutory interest on late payments, plus reasonable debt recovery costs.
What should be included in a collection letter?
It should clearly state the amount owed, the original due date, the invoice reference, payment options, and a new payment deadline. Keep the tone polite but firm and include your contact details for queries.
Letter Before Claim Template Conclusion
Before sending a letter to claim, ensure you have sent statements, emails, and made phone calls to collect payment. Once you send out a letter of claim, you will not give the customer any further notice before passing the matter to the courts.
The debt collection letter was traditionally a 7-day notice, but current practice has extended this to 14 days. You should only send a 14-day letter if you are fully prepared to take legal proceedings against the customer if payment is not received.
If necessary, consider using the services of a debt collection agency.
