All business owners operating online stores need to decide how their customers will pay. Two popular options in Germany are payment by invoice and direct debit.

In this article, we explain the differences between these payment methods, including their respective advantages and disadvantages. We’ll also discuss which option customers in Germany prefer and what this means for retailers.

What’s in this article?

• What is the difference between payment by invoice and direct debit?
  
• Advantages and disadvantages of payment by invoice
  
• Advantages and disadvantages of direct debit
  
• Which payment method do customers in Germany prefer?
  
• Payment by invoice or direct debit: Which should retailers offer?
  

What is the difference between payment by invoice and direct debit?

Payment by invoice and direct debit are payment methods that differ primarily in how the payment takes place.

For payment by invoice, customers order products, have them delivered, and only have to pay after receipt. The payment period in Germany is usually 14 or 30 days. Because customers pay after the fact, payment by invoice is referred to as a “downstream” payment method. The invoice specifies the goods or services delivered and the amount due. This official payment request is delivered with the products or sent electronically. The customer transfers the amount due to the business’s account by the deadline. For businesses, invoices are proof of sale and an essential part of financial accounting.

With direct debit, payment is not made by an active transfer from the customer, but is debited directly from the customer’s bank account. A Single Euro Payments Area (SEPA) Direct Debit requires the written consent of the customer. This direct debit mandate allows the business to debit the outstanding amount from the customer’s bank account on a specified due date.

Advantages and disadvantages of payment by invoice

Advantages

For retailers:

• Low risk of customers abandoning their orders: With payment by invoice, customers do not have to provide any sensitive payment information. This reduces the risk of them deciding against making a purchase.

• Increase in sales: Since customers only have to pay after receiving their products, payment by invoice can lower the barriers to purchase. A higher conversion rate increases businesses’ revenues.

• Customer satisfaction: Payment by invoice is considered a very secure and trustworthy payment method—a particularly important factor for customers in Germany. In addition, retailers who deliver goods before receiving payment signal trust to their customers. Payment by invoice can therefore have a positive effect on customer satisfaction and loyalty.

• Competitive advantage: Not all retailers offer payment by invoice. Those who offer their customers this payment option can stand out from the competition which often only accepts immediate or advance payments.

For customers:

• No disclosure of sensitive data: Anyone who orders online using payment by invoice must provide some personal information, such as their name and address. However, disclosing bank details is not necessary. This minimizes the risk of data misuse and fraud.

• The option of inspecting the products: Customers can inspect, try on, or test products at their leisure before making payments. If a customer doesn’t like a product, they can easily return it without having to pay any money. The same applies if the products are damaged or defective.

• No risk in the event of non-delivery: If an order doesn’t arrive, customers don’t have to fight for a refund. They only pay once everything has been delivered correctly.

• Flexible payment: With payment by invoice, the customer decides when to pay. They can flexibly choose when to make the transfer within the set deadline.

Disadvantages

For retailers:

• Payment defaults and delays: Retailers make advance payments with payment by invoice. They bear the risk that customers will not pay or will pay late. If large amounts remain outstanding, this can potentially lead to liquidity problems for the business.

• Increased administrative burden: For retailers, payment by invoice involves increased administrative costs. Processing outstanding invoices, dunning letters, and payment reminders requires additional time and financial resources.

• Higher return rate: Since payment by invoice is particularly convenient for customers, this can increase the number of returns. On average, consumers in Germany return 11% of their online purchases. Some customers, for example, order several items to choose from and then return some of the products. This increases logistical effort for retailers.

• Risk of fraud: Without immediate payment verification, there is a risk that customers will provide false information or intentionally fail to pay. Orders with fictitious identities or incorrect address information are particularly problematic. For retailers, this not only means potential loss of sales, but also additional costs for shipping undeliverable products.

For customers:

• Credit check: Many retailers check the creditworthiness of customers before payment by invoice. If the information is negative, they might not allow that payment method to be used.

• Reminder fees: If payment is forgotten or late, customers might be charged reminder fees, interest on late payments, or even debt collection costs.

• Possible Schufa entries: If an invoice remains unpaid for a significant period, retailers can forward the matter to a debt collection agency or initiate a negative entry with the Schufa credit bureau. This can have a negative impact on the customer’s creditworthiness.

• Risk of excessive debt: Customers who make multiple purchases at the same time can easily lose track of their spending. Since no immediate payment is required, there is a risk of underestimating the actual financial burden.

Advantages and disadvantages of direct debit

Advantages

For retailers:

• Low administrative effort: The direct debit procedure is automated. Retailers do not have to send invoices and reminders, or actively record payments. This reduces administrative effort and saves resources—especially for recurring payments, such as subscriptions and membership fees.

• Predictable receipt of payment: With direct debit, payment is collected on a set date. This means that retailers usually receive their money without delay. This can help with financial planning and improve a business’s liquidity.

• Low risk of default: With direct debit, the risk of payment default is low because the retailer collects the amount directly from the customer’s account. In individual cases, chargebacks can occur—for example, if the account is not covered or the direct debit is revoked. However, retailers have the option of requesting payment again.

• Security: The direct debit procedure is a secure payment method for retailers, since each payment is linked to a unique mandate reference. This means the risk of fraud is significantly lower than with payment by invoice. In addition, clear guidelines regarding cancellation and chargeback periods ensure that both retailers and customers are legally protected.

For customers:

• Comfort: Since customers do not play an active role in the payment process, the direct debit procedure is particularly convenient and time-saving.

• No anxiety about deadlines: With payment by invoice, customers must pay attention to payment deadlines to avoid reminder fees or negative entries in the Schufa credit report. Direct debit eliminates this concern, as the payment is automatically debited on the agreed date.

• Security: The direct debit procedure offers a high level of security, as each payment is linked to a unique mandate reference. This ensures transparent and traceable transaction documentation, which reduces the risk of unauthorized debits and fraud.

• Option to contest: With direct debit, customers can contest payments without giving a reason. Unlike with credit card payments, contesting SEPA direct debits is final. Retailers cannot object, but rather must sort disputes out with their customers.

Disadvantages

For retailers:

• Customer consent required: To process direct debits, retailers must obtain the express consent of their customers in the form of SEPA Direct Debit mandates. This requires an additional administrative step, as the mandates must be correctly documented and stored.

• Chargebacks: Retailers face the risk of chargebacks. If the customer’s account balance is insufficient or the payment is declined for other reasons, retailers must request the transaction again. This causes additional administrative effort and can result in chargeback fees.

• No contestation of returned direct debits: Direct debits that are reversed by customers cannot be contested. Retailers must request payment again or sort it out with the customer.

• Dependence on banking processes: Holidays and technical problems at the executing financial institutions can delay payment collection. Retailers have little influence on these external factors and have to rely on the correct and timely execution of the banking process.

For customers:

• Disclosing sensitive data: To use the direct debit procedure, customers must provide their bank details during the ordering process. These details can be used illegally. There is also a risk that customers might accidentally submit their data to fraudulent online shops or phishing websites.

• Little control over the payment deadline: While customers can choose when to pay within the set period with payment by invoice, they have less flexibility when using direct debit. Normally, payment cannot be delayed.

• Delays in refunds: In the event of a returned or canceled order, the amount already collected must be refunded. In this case, customers might have to wait for their money.

• Unintended debits: Sometimes retailers accidentally—or intentionally—make debits that have not been agreed upon with the customer. If this goes unnoticed, it can lead to unwanted financial burdens.

Which payment method do customers in Germany prefer?

Payment by invoice or by direct debit—both payment methods offer customers advantages as well as disadvantages. Accordingly, the results of the EHI study “Online Payment 2024” are not surprising: both payment options are popular in Germany. A look at the share of ecommerce sales in 2023 shows that 26.7% were generated via payment by invoice and 16.7% were by direct debit. This puts these payment methods in second and third place, respectively, in the report’s rankings, only slightly behind PayPal (27.7%). And as the figures show, customers in Germany have a slight preference for payment by invoice.

Payment by invoice or direct debit: Which should retailers offer?

Online retailers in Germany should carefully consider which payment methods they offer their customers. There are now numerous options, and payment by invoice and direct debit are just two of them. If businesses want to cover the payment preferences of as many customers as possible, they should offer a variety of choices.

The results of the “Online Payment 2024” study provide information not just about which payment methods shoppers in Germany prefer, but also about the prevalence of credit cards, invoices, and direct debits. The market coverage and popularity of payment by invoice and direct debit are mutually dependent: if customers can pay in these ways in many online shops, they will expect them elsewhere too. Therefore, it is advisable for retailers who do not currently offer payment by invoice or direct debit to offer them.

How Stripe can help

Payment service providers such as Stripe can help with this—for example, with the Stripe Payments solution. With Payments, you can accept payments worldwide and offer your customers locally preferred payment methods, including payment by invoice and direct debit. If you accept payment by invoice, you will receive the purchase amount from Stripe immediately after a payment is approved, less a service fee. Stripe then sends an invoice with your branding to your customers. This way, you do not have to wait for customers to pay—Stripe makes the financial advance on their behalf, giving you payment and planning security. Furthermore, a customer will only be offered the option of payment by invoice if a prior risk assessment showed they are not a risk.

Considering options like these, retailers should base their decision for or against a payment method primarily on their business strategy, their target groups, and the desired level of security.