For businesses in Germany, it is important that the customer is made aware of the applicable payment term when an invoice is issued. This article explains the different payment terms that apply by law to transactions with private individuals, as well as to B2B transactions, and what businesses need to bear in mind when choosing their own payment term.
What's in this article?
- What is a payment term?
- What is the statutory payment term in Germany and how is it legally defined?
- Why payment term details should always be included on an invoice
- What does "payable immediately" mean on an invoice?
- What to do if the customer does not comply with the payment term
- How can payment terms be managed efficiently?
What is a payment term?
A payment term is one of the conditions of payment that businesses and merchants should specify on an invoice – for example, "Payable within 30 days". However, a specific date can also be set as the payment term. If no payment term is specified on an invoice, the statutory payment term of 30 days applies. Businesses can also agree individual payment terms with their customers.
What is the statutory payment term in Germany and how is it legally defined?
Invoices are always payable immediately. However, according to the German Civil Code (BGB), the statutory payment term is 30 days from the receipt of an invoice if it relates to a service. When delivering goods, the deadline applies from the delivery of the goods, provided that this occurs after receipt of the invoice. The invoice recipient must make the payment within this period. Once the deadline has passed, the recipient is considered to be in default of payment. If a payment term is not specified on an invoice, the statutory payment term of 30 days applies automatically. If a merchant is sending an invoice to a private individual, they must state the payment term of 30 days on the invoice. However, this is not necessary when invoicing a business (B2B).
The specification of the payment term on the invoice informs the customer of the payment due date and the payment obligation. This notice legally places late-paying customers in default of payment if the invoice has not been paid by the agreed deadline. It is then advisable to first send a payment reminder and then follow up with one, or multiple, dunning letters.
What payment term should be chosen for invoices in Germany?
German law specifies a payment term of 30 days, which is usually the deadline that businesses choose. However, businesses can agree to a shorter or longer payment term with their customers. It should be noted that the payment term is not calculated from the invoice date, but rather from the date of delivery or completion of a service.
A shorter deadline than the statutory payment term of 30 days is recommended if a business wants to avoid liquidity bottlenecks and receive their money sooner. Businesses can specify the shorter payment term in their Terms of Service or in a contract with their business partner, and then include a note on the invoice stating "Payable within 14 days", for example.
However, if it is more important for a business to offer its customers an attractive incentive with its conditions of payment, it can also set an extended payment term of 60 days or 3 months, for example. Businesses don't have to inform their customers explicitly of a longer payment term before invoicing – they can simply state it on the invoice. But including a promotional banner in an online shop, stating "Buy now, pay in three months" (and thus indicating an individual payment term) can appeal to customers and may create an incentive to buy.
Can a seven-day payment term be set?
German businesses can also agree to a very short payment term of seven days with the customer. As with all other payment terms, this is only due when the goods are delivered or a service has been completed. The only important thing is that the business communicates this before invoicing – either in their Terms of Service or in a contract with their customers. It is not legally permissible to simply state a shorter payment term that deviates from the statutory payment term on the invoice without prior agreement from the customer. A shorter payment term that has not been agreed upon beforehand would be considered to be invalid.
Why payment term details should always be included on an invoice
If a clear payment term is not agreed upon with the customer, a specific date cannot be given as the payment deadline in the event of a dunning procedure. There is then a risk of getting into a dispute over the amount of late payment interest due. To avoid this, it's best to make sure that the payment term is communicated clearly to follow standard business practice.
Businesses will also be able to keep better track of when payments are due and manage payment reminders or dunning notices professionally. All the conditions of payment should be stated clearly on the invoice, including the payment term. This prevents misunderstandings and gives customers the greatest possible transparency regarding the payment process.
When does the payment term start and end?
The payment term begins with receipt of the invoice, not with the invoice date. However, in the case of a delivery of goods, it begins with the receipt of the goods. If an invoice is sent by post, three working days should be allowed for delivery, as delivery cannot be tracked for standard letters. As a result, before a payment reminder or the first dunning letter is sent to a late-paying customer, at least three days should be added to the originally agreed payment term to allow for delivery. This way, it is possible to be sure that customers are actually in default. Receiving a payment reminder or even a dunning letter before the payment deadline would, understandably, upset customers and put a strain on future business relationships.
If the invoice is sent by email, the invoice date is usually the same as the invoice receipt date, as the invoice is delivered to customers within seconds. However, there is always the possibility that an invoice will end up in a spam folder and won't actually reach the customer. It is therefore advisable to request a read receipt to be sure that customers have received the invoice.
The payment term expires at the end of the last day of the period or on the specified date, in accordance with the provisions of the German Civil Code (Section 193 of the BGB). However, it should be noted that if the payment due date falls on a Saturday, Sunday or bank holiday, the payment term will be extended until the next working day.
What does "payable immediately" mean on an invoice?
According to the German Civil Code, an invoice is always due immediately, but every customer is given a statutory payment term of 30 days. Put simply, "Payable immediately" therefore means that there is no individual payment term and the statutory payment term of 30 days applies. Despite "Payable immediately" being stated on the invoice, a customer is only in default of payment once the payment term has come to an end.
What to do if the customer does not comply with the payment term
If a customer lets the payment deadline pass, the invoice issuer should first send a politely worded payment reminder to draw the customer's attention to the outstanding invoice. If the customer does not respond, they can then send a dunning letter for the outstanding invoice amount. The dunning letter should state the new payment deadline. The customer must also be advised that they will incur further costs in the event of non-payment (dunning fees, late payment interest etc.). If the payment is still not made after the first dunning letter, two more dunning letters should be sent before initiating the legal dunning procedure.
Alternatively, the first step could be to send a dunning letter to the customer, rather than starting with a payment reminder. However, this depends on the relationship with the customer, and it is generally better for future cooperation to send a payment reminder first.
Before sending a dunning letter, attempts should be made to contact the late-paying customer directly. This way, any misunderstandings (e.g. missed invoice, accounting errors) can be cleared up quickly. Personal contact also usually makes customers more willing to maintain a relationship of trust and to settle an outstanding invoice promptly.
How to make sure that customers comply with the payment term
It is important that a clear payment term is specified on the invoice. Although the statutory payment term of 30 days applies if no specific payment term is given, many customers are unaware of this and do not have a payment deadline in mind. However, if the payment term is made clear to customers from the outset, they are more likely to honour it and there is a better chance that the invoice will be paid on time.
It is also possible to offer cash discounts on the invoice, i.e. the customer receives a discount if they pay within a specified period. The standard discount is 2% for payment within seven days. This usually makes the customer more motivated to pay the invoice on time.
How can payment terms be managed efficiently?
Businesses should use accounting software for professional accounts receivable and receivables management. Accounting software incorporates an invoicing programme that generates invoice numbers and payment deadlines automatically, and notifies the businesses when payments are due. This provides a complete overview of invoices and the agreed payment terms, which helps to avoid liquidity bottlenecks and allows payments to be collected from customers more quickly.
An invoicing programme allows businesses to create invoices, payment reminders and dunning letters automatically. Accounting software is especially useful if businesses have individual agreements with customers regarding payment terms. In addition, accounts receivable and receivables management becomes more transparent and efficient – saving businesses valuable time when bookkeeping and managing payment terms.