Short answer: A letter before action is the usual first formal step for a company debt: it sets out the claim and gives 14 days. A statutory demand (Form SD1) is an insolvency step for an undisputed debt of £750 or more that can lead to a winding-up petition.
Statutory demand vs letter before action is a choice many UK creditors face when a limited company leaves a commercial invoice unpaid. They are not the same tool. A letter before action (LBA) is a pre-action civil step. A statutory demand is an insolvency step that can lead toward a winding-up petition. The fee is 15% of what is recovered, payable only when you have been paid. Recovery is not guaranteed.
Debt Collection UK (a trading style of PASECOM GROUP LTD) introduces B2B files to independent partner agencies. We are not solicitors, we are not authorised by the Financial Conduct Authority, and we do not collect consumer credit. PASECOM GROUP LTD was incorporated on 7 April 2026. We introduce commercial claims; we do not issue proceedings or insolvency petitions. Partners collect. Recovery is not guaranteed. Nothing here is legal advice on whether you should serve a statutory demand — take advice from a solicitor or licensed insolvency practitioner before that step.
This article compares the two routes for company (B2B) debts in England and Wales. Money pages: letter before action and corporate debt recovery. Related hub: limited company ignores final demand.
What is a letter before action for?
An LBA is the clear written claim courts expect before you escalate a commercial debt dispute. For company-versus-company files in England and Wales, follow Practice Direction – Pre-Action Conduct and Protocols: set out the claim, list key documents, say what you want and by when, and allow a reasonable time to reply — typically 14 days in a straightforward case.
An LBA:
- 1. Puts the debtor on formal notice of the claim and the amount.
- 2. Invites payment, a short plan, or a written dispute with evidence.
- 3. Builds a paper trail if you later instruct a partner or issue a county court claim.
- 4. Stays inside ordinary civil procedure — it is not, by itself, a winding-up threat.
For most overdue B2B invoices, a proportionate LBA after soft chasing is the usual next step. More detail: letter before action for business debts and the letter before action money page.
What is a statutory demand for (companies)?
A statutory demand against a limited company is a formal written demand in the prescribed form. Under section 123(1)(a) of the Insolvency Act 1986, a company can be deemed unable to pay its debts if a creditor owed more than £750 serves a written demand at the company’s registered office and the company neglects for three weeks to pay, secure, or compound the debt to the creditor’s reasonable satisfaction.
GOV.UK publishes Form SD1 for demanding immediate payment from a limited company within 21 days. The Insolvency Service’s director guidance on statutory demands explains that if there is no response after 21 days and the debt is over £750, an application can be made to wind the company up. Failure to deal with a demand can also affect credit when others become aware of it.
The Insolvency (England and Wales) Rules 2016, rule 7.3 set out the required content of a company statutory demand.
A statutory demand is an insolvency pressure tool, not a routine credit-control letter. Misuse on a genuinely disputed debt can backfire. We are not solicitors; do not treat this guide as DIY insolvency advice.
How do an LBA and a statutory demand compare side by side?
| Point | Letter before action | Statutory demand (company) |
|---|---|---|
| Legal character | Pre-action civil conduct | Insolvency Act demand (inability to pay) |
| Typical reply window | Often about 14 days (PD) | 21 days after service (GOV.UK / Rules) |
| Minimum debt | No statutory £750 floor for an LBA | Over £750 for the s.123(1)(a) route |
| Main next step if ignored | Partner instruction, negotiation, or court claim | Possible winding-up petition (serious; get advice) |
| Best for | Most unpaid commercial invoices | Narrow cases where debt is clear, due, and insolvency pressure is appropriate |
| Relationship impact | Firm but still commercial | High — directors treat it as existential risk |
When is an LBA usually the better first formal step?
Choose an LBA first when:
- 1. Soft chasing has failed but you still want a structured commercial reply window.
- 2. There might be a genuine dispute, PO mismatch, or missing paperwork to sort.
- 3. You want to preserve a trading relationship if the buyer engages.
- 4. The debt is below the insolvency threshold or the file is not ready for insolvency steps.
- 5. Your aim is payment or a short plan — not to threaten winding up.
On qualifying commercial debts you may also claim statutory interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998. Those add-ons do not replace the 15% fee.
When is a statutory demand typically considered?
Creditors sometimes consider a statutory demand when the debt is undisputed, clearly due, above £750, soft chase and an LBA have failed, and they are prepared for the insolvency consequences of non-payment — including the possibility of a winding-up petition. That path is high stakes for both sides. Serving a demand on a disputed debt, or treating Form SD1 as a louder chase letter, is a common mistake.
Before anyone serves a statutory demand you should have rock-solid proof of debt, the correct legal entity and registered office, and advice from a solicitor or insolvency professional on risk, service, and next steps. Debt Collection UK does not serve statutory demands or present petitions. We introduce B2B files; partners collect. Overview: corporate debt recovery.
What is a practical sequence for most company invoice debts?
- 1. Confirm the limited company’s legal name, company number, and registered office.
- 2. Assemble invoice, contract or PO, delivery or completion proof, and chase history — see proof of debt.
- 3. Soft chase, then a clear final commercial demand.
- 4. Send a Practice Direction letter before action with a named pay-by date.
- 5. If ignored on an undisputed file: instruct a collection partner on a fixed percentage (15% only when the client is paid), agree a short written plan, or take advice on court or insolvency options. Recovery is not guaranteed.
Frequently asked questions
What is the difference between a statutory demand and a letter before action? An LBA is a pre-action civil letter under Practice Direction rules. A company statutory demand is an Insolvency Act demand that can support a winding-up petition if unpaid after the statutory period. See Insolvency Act 1986 s.123 and the Practice Direction.
Should I send a statutory demand instead of an LBA for an unpaid invoice? Usually no as a first formal step. Most commercial invoices should go through soft chase and a proper LBA first. A statutory demand is a serious insolvency step for clear, due company debts — get professional advice before using it.
How long does a company have to respond to a statutory demand? GOV.UK frames a 21-day window after service of Form SD1. Neglect for three weeks after a valid demand is part of the s.123(1)(a) test. Do not rely on this guide alone for deadlines on your file.
Can Debt Collection UK serve a statutory demand for me? No. We introduce B2B claims to partner agencies. We are not solicitors and we do not present winding-up petitions. Partners collect under their terms. Recovery is not guaranteed.
Does recovery cost nothing if I upload an invoice here? No. This guide and the upload path have no upload fee. Partner recovery is usually a fixed percentage of what is recovered (marketing: 15% only when the client is paid; often no-collection, no-fee). Recovery is not guaranteed.
What if the company disputes the debt? Pause hard escalation, including any talk of a statutory demand, until the dispute is clarified in writing with evidence. An LBA that invites a reasoned reply is usually the safer commercial step. We are not solicitors; take advice if needed.
If a limited company still owes a clear commercial balance after soft chasing, start with a firm letter before action — not a DIY insolvency threat. When a statutory demand is the live question, use our statutory demand page for the creditor checklist and claim form. The fee is 15% of what is recovered, payable only when you have been paid. Recovery is not guaranteed. Upload the invoice and terms when you are ready to instruct.