Payment terms in Germany explained

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  1. Inleiding
  2. What is a payment term?
  3. What is the statutory payment term and how is it legally defined?
    1. What payment term should you choose for your invoices?
    2. Can I set a payment term of seven days?
  4. Why should you always include payment term details on an invoice?
    1. When does the payment term start and end?
  5. What does “payable immediately” on an invoice mean?
  6. What should you do if the customer does not comply with the payment term?
    1. How can I make sure my customers comply with the payment term?
  7. How can payment terms be managed efficiently?

For businesses in Germany, it is important that the customer be 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 and to B2B transactions, and what you need to bear in mind when choosing your own payment term.

What’s in this article?

  • What is a payment term?
  • What is the statutory payment term and how is it legally defined?
  • Why should you always include payment term details on an invoice?
  • What does “payable immediately” on an invoice mean?
  • What should you 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, you can also set a specific date as the payment term. If you don’t specify a payment term on an invoice, the statutory payment term of 30 days applies. You can also agree individual payment terms with your customers.

What is the statutory payment term 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 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 you don’t specify a payment term on an invoice, the statutory payment term of 30 days automatically applies. If you are a merchant sending an invoice to a private individual, you 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 you choose for your invoices?

German law specifies a payment term of 30 days, which is usually the deadline businesses choose. However, you can agree to a shorter or longer payment term with your 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 you want to avoid liquidity bottlenecks and get your money sooner. You can specify the shorter payment term in your terms of service or in a contract with your business partner, and then include a note on the invoice stating “Payable within 14 days,” for example.

However, if it is more important for you to offer your customers an attractive incentive with your conditions of payment, you can also set an extended payment term of 60 days or three months, for example. You don’t have to explicitly inform your customers of a longer payment term before invoicing; you can just state it on the invoice. But including a promotional banner stating “Buy now, pay in three months” in an online store—indicating an individual payment term—can help appeal to your customers and may create an incentive to buy.

Can I set a payment term of seven days?

You 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 is completed. The only important thing is that you communicate this before invoicing—either in your terms of service or in a contract with your 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 with the customer. A shorter payment term that has not been agreed upon beforehand would be considered invalid.

Why should you always include payment term details on an invoice?

If you do not agree to a clear payment term with your customer, you cannot refer to a specific date 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 the payment term is communicated clearly to follow standard business practice.
You’ll also be able to keep better track of when payments are due and manage payment reminders or dunning notices professionally. You should clearly state all conditions of payment, including the payment term, on the invoice. This prevents misunderstandings and gives your 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 you’re sending an invoice by mail, you should allow three business days for delivery since delivery cannot be tracked for standard letters. So before you send a payment reminder or the first dunning letter to a late-paying customer, you should add at least three days to the originally agreed payment term to allow for delivery. That way, you can be sure that your customers are actually in default. Receiving a payment reminder or even a dunning letter before the payment deadline would, understandably, upset your customers and put a strain on the future business relationship.

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 your 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 if you want to be sure that your 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, note that if the due date of payment falls on a Saturday, Sunday, or public holiday, the payment term will be extended until the next business day.

What does “payable immediately” on an invoice mean?

According to the German Civil Code, an invoice is always due immediately, but every customer is given a statutory payment term of 30 days. “Payable immediately” therefore simply means that there is no individual payment term and therefore the statutory payment term of 30 days applies. Despite the statement “payable immediately,” a customer is only in default of payment after the end of the payment term.

What should you 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, you can send a dunning letter for the outstanding invoice amount. The dunning letter should state the new payment deadline. You can also advise the customer that they will incur further costs in the event of nonpayment (dunning fees, late payment interest, etc.). If the payment is still not made after the first dunning letter, you should send two more dunning letters before initiating the legal dunning procedure.

You can also skip the payment reminder and send a dunning letter to the customer as the first step. However, this depends on your relationship with the customer, and it is generally better for future cooperation to send a payment reminder first.

Before you send a dunning letter, you should try to contact the late-paying customer directly. That way, any misunderstandings (e.g., missed invoice, accounting errors) can quickly be cleared up. Personal contact also usually makes your customers more willing to maintain a relationship of trust and to settle an outstanding invoice promptly.

How can I make sure my customers comply with the payment term?

It is important that you specify a clear payment term 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 you make the payment term clear to your customers from the outset, they are more likely to honor it and there is a better chance that the invoice will be paid on time.
You can also offer a cash discount on the invoice, i.e., the customer gets 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 program that automatically generates invoice numbers and payment deadlines, and notifies you when payments are due. This means you always have a complete overview of your invoices and the agreed payment terms, which helps you avoid liquidity bottlenecks and allows you to collect payments from your customers more quickly.

An invoicing program allows you to create invoices, payment reminders, and dunning letters automatically. Accounting software is especially useful if you have individual agreements with your customers regarding payment terms. Your accounts receivable and receivables management becomes more transparent and efficient—saving you valuable time when bookkeeping and managing payment terms.

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