Unpaid Invoices – Complete Dunning Process Germany

Key Takeaways

• Dunning in Germany means reminding customers about overdue invoices through emails, letters, calls, or even court action.
• You should follow a clear timeline when asking for payment from your customers.
• Formal reminders include a reminder fee (0.5% of the invoice amount, minimum €5 and maximum €150).
• Legal options include the online judicial dunning process, a debt collection agency, selling the invoice to a factoring company, or hiring a lawyer.

This is how you do it

• Send the invoice and wait until the due date.
• Make an informal inquiry about the unpaid invoice.
• Send formal reminders, including the reminder fee.
• Finally, take legal action if needed.

Table of Contents

What is the dunning process (Mahnwesen) in Germany?

When a business (service provider) contacts a customer (service recipient) over unpaid/overdue invoices, it’s referred to as dunning (Mahnwesen). This can be done via emails, letters, in-person visits, and even through court orders. 

The intent behind dunning is to remind the customer of the impending payments and encourage swift payment.

There are two types of dunning procedures:

1. Out-of-court dunning procedure: This is the initial stage where you contact the service recipient over calls, emails, or send reminders till they pay the invoice amount.
2. Judicial dunning procedure: When initial correspondence stages fail, you seek the court’s assistance to recover the money from the customer.

In addition to the above, there are two options:

• Hiring a debt collection agency or 
• Selling the invoices to a factoring company.

Stay tuned!

Learn something new about Germany every week and make informed decisions with confidence.

Stay tuned!

Learn something new about Germany every week and make informed decisions with confidence.

What can you do if a customer doesn’t pay your invoice?

Here are the steps you can take if a customer refuses to pay the invoice.

Day 0: Send an invoice with a due date.

The recommended due date is 20 to 30 days. The longer deadline is due to most large companies following an elaborate invoicing process. 

Day 31: If there is no payment, wait for another 3-5 days.

Sometimes delays happen. Give your customer the benefit of the doubt.

Day 35: Inquire via a call, e-mail, or letter.

Make an informal inquiry about the invoice payment. It’s possible your invoice landed in the customer’s spam folder.

Usually, asking politely about the pending payment resolves the issue.

It’s recommended to communicate via text or email, as it’s easier to forward them to the relevant department.

Day 42: Send a formal reminder with a reminder fee.

This reminder fee is typically 0.5% of the invoice amount. Minimum reminder fee is 5€ and maximum 150€. The Verwaltungsvollstreckungsgesetz regulates the reminder fee.

You can create a reminder using your accounting software. Your reminder should contain the following information.

• Title: Payment reminder
• Invoice number for which you are writing the reminder
• Copy of the original invoice
• Mention the purpose
• New payment deadline (one week)
• Original invoice amount, reminder fees, and the total. Mention the VAT or other subsidies that were applied to the original

Best accounting software in Germany ->

Send a maximum of three reminders in total. Never number your reminders as 1st, 2nd, etc. The reason is that if you number your reminder, it implies that the customer can wait until the final reminder to make the payment.

If the customer doesn’t pay after the reminders, it’s time to take legal action.

Day 63: Take legal action

You have four ways to get your money.

• Start a judicial process online (recommended).
• Hire a debt collection agency (Inkassobüro). They’ll take the responsibility of collecting the debt from the customer. They keep 10% to 20% of the invoice amount as their fee.
• Sell your invoice to factoring companies. If you want quick cash, you can sell your invoice to the factoring companies. They will pay you part of the invoice (usually 80%) and get the invoice sum from your customer later.
• Hire a lawyer to sue the customer.

Judicial dunning (Gerichtlichen Mahnverfahrens)

Starting a judicial dunning is the quickest and cheapest way to get your money. Here is how the process looks.

• Apply for the judicial dunning online. Each federal state has its own website for filing judicial dunning. Google “Gerichtlichen Mahnverfahrens <city>” and you will find the portal.
• After 7-14 days of applying, the court will send a letter to your customer. Companies take court letters seriously and react often quickly. In most cases, the customers make payment relatively fast after receiving the court letter.
• Suppose the customer doesn’t pay after the court letter. In this case, the dunning order automatically becomes an enforcement order and is forwarded to the bailiff.
• The bailiff then goes to the customer’s address to collect the money. They might even seize something from the customer to settle the debt.

How do large companies process an invoice in Germany?

Here is how the process looks.

• First, the accounting department checks the invoice for formal correctness. This includes ensuring that all required information is present and accurate.
• Once the accounting department has approved the invoice, it is sent to the budgeting department
• The budgeting department once again verifies the invoice and whether it contains the agreed amount.
• There may be other departments or individuals who need to approve the invoice before payment is made. However, at least two people verify the invoice before it is paid. 

What information should your invoice contain to be legally correct in Germany ->

Furthermore, many companies have fixed payment days. For example, if the payment day is Monday, invoices must be approved by Friday. The bank transfer can also take a day or two.

If everything runs smoothly, it’ll take at least 10 days for the payment to land in your bank account. Thus, setting a 5-day deadline and sending a reminder on the 6th day doesn’t make sense.