Payment on invoice allows customers in Germany to pay for products ordered online after receiving them. This can increase customer trust and encourage them to make purchases. As a retailer, this payment method might initially sound unattractive because you receive payment only after the receipt of goods. However, according to the 2022 Trust Monitor study, 94% of German online businesses have recognized trust as a factor in their business success.

In this article, you’ll learn what payment on invoice is in Germany, what advantages and disadvantages it has for retailers and customers, and how retailers can minimize risks.

What’s in this article?

• What is payment on invoice?
  
• Why is payment on invoice so popular in Germany?
  
• What are the advantages of payment on invoice for retailers?
  
• What are the disadvantages of payment on invoice for retailers?
  
• What are the advantages for customers?
  
• What are the disadvantages for customers?
  
• Why retailers in Germany should offer payment on invoice
  

What is payment on invoice?

Payment on invoice is a payment method that allows customers to order goods without having to pay for them directly at the time of purchase. Payment is deferred and is not due until the goods are received.

The invoice is usually sent digitally by email or included with the delivery. Customers can check the ordered goods for completeness and quality before paying. Payment terms for invoices are usually within 14 or 30 days in Germany. The German Civil Code (BGB) stipulates that a debtor in Germany is in default no later than 30 days after the due date and receipt of an invoice. The invoice amount must be transferred to the business’s account within this period.

Detailed information can be found in our guidelines for payment on invoice.

Why is payment on invoice so popular in Germany?

Approximately 27% of online purchases in Germany were paid by invoice in 2023. German customers prefer this payment method, especially for larger invoice amounts. In an international comparison, the DACH region (including Germany, Austria, and Switzerland) and Poland are leading the way with using payment on invoice. Sweden and Denmark are also seeing an increase.

German customers appreciate that they don’t have to pay up front when purchasing on invoice. This can strengthen trust in the company, provide security, and encourage customers to make purchases. Therefore, Stripe offers payment on invoice as a payment method exclusively for the German market.

What are the advantages of payment on invoice for retailers?

While a deferred payment option can seem to be primarily beneficial for the customer, it can also have benefits for the business:

Customer satisfaction

When businesses provide the option to pay on invoice, customers are likely to be more satisfied overall. Many German customers consider payment on invoice to be a particularly safe, fair, and transparent payment method. On the one hand, this is because buyers do not have to pay anything up front. On the other hand, they do not have to worry about getting their money back if they decide they no longer want the goods after receiving them. This gives buyers the feeling that their interests are protected.

This, in turn, increases their trust in the retailer and can improve customer loyalty in the long run. When shoppers have a positive experience paying on invoice, they are more likely to remain loyal to the retailer and continue to shop there in the future.

Low risk of abandonment

Many online purchases in Germany fail at the final hurdle of the purchasing process: checkout. According to a study by the Baymard Institute, over 70% of online purchases are abandoned before the purchase is completed.

At this point, shoppers must enter their payment information—a sensitive and, for some, potentially daunting task. Providing credit card or bank details and personal information is often perceived as a security risk, causing many customers to abandon the purchase process. Around 80% of German online customers regularly cancel orders, if their preferred payment method is not offered. With online fraud and privacy concerns on the rise, there is a growing reluctance to enter payment information on unfamiliar websites.

The advantage of payment on invoice is that no sensitive payment information needs to be transmitted. Businesses only need a name and address to ship the goods. This can make customers feel more secure, which can be a decisive factor, especially for new customers who have not yet had a positive experience with the online shop.

No additional costs

Payment on invoice is the most cost-effective payment method for online businesses because there are no direct fees or additional costs, unless the transaction is processed through a payment service provider.

In contrast, other payment methods—such as credit card or direct debit—often incur transaction fees. In addition, integrating payment on invoice into an online store is typically less expensive than implementing other payment methods that can require additional technical infrastructure or ongoing maintenance.

For a standardized and intuitive way to process global payments, consider Stripe Payments. This single payment solution allows businesses to automatically offer their customers more than 100 different payment methods, including payment on invoice. Using Payments, you can create a seamless customer experience and increase your conversion rate with several built-in optimizations.

Increase in sales

Since customers pay after receiving the goods, payment on invoice lowers the purchasing threshold. Payment on invoice can also increase the likelihood of an order. A higher completion rate leads to more successful purchases and, therefore, sales growth for retailers.

Competitive advantage

Paying on invoice can give online businesses a competitive advantage over other businesses who do not offer this payment option.

This allows businesses to stand out, especially in markets or industries where other factors such as quality or price are comparable. Businesses that offer payment on invoice position themselves as customer-centric and provide another good reason for customers to buy from them.

What are the disadvantages of payment on invoice for retailers?

Here are the main disadvantages of payment on invoice for retailers:

Payment defaults and delays

A significant drawback of payment on invoice for retailers is the financial risk associated with unpaid or late invoices.

This is particularly problematic for larger order values, which can affect the company’s cash flow. Outstanding payments can have a domino effect, making it difficult for retailers to pay service providers or suppliers on time. In such cases, a customer’s insolvency can lead to a chain reaction that threatens the financial stability of the entire company.

Increased administrative costs in the event of nonpayment

Late payments or nonpayments increase administrative costs. Typically, additional resources must be dedicated to receivables management, including internal staff and external service providers. But it is not just reminders and dunning letters that cost money. In the worst case, a business might need to hire lawyers.

In addition, when paying on account, businesses must perform credit checks before the sale. To minimize the risk of nonpayment, retailers should check the creditworthiness of their customers. Retailers perform credit checks using internal systems or external providers.

Risk of fraud

Another issue is the return of used goods, which is more common in the fashion industry.

Customers order clothes for special occasions, wear them once, and then return them. This practice is challenging for retailers because of the returns process and the additional costs they can incur. These items can no longer be sold as used goods, or they can only be sold with additional effort.

What are the advantages for customers?

Paying on invoice offers customers the following advantages:

Payment flexibility

Paying on invoice offers customers the significant advantage of having a payment deadline and paying the outstanding invoice amount within that period. This flexibility reduces the pressure to pay immediately. It also allows customers to better plan their payments, especially for larger orders or in times of financial uncertainty. Having a payment deadline can reduce barriers to online shopping and increase the likelihood of purchase.

No additional costs

There are no additional charges for customers who pay on invoice, provided payment is made on time. Other financing options, such as installment purchases, can incur interest or processing fees. This is not the case with payment on invoice. Customers simply pay the invoice amount within the specified time frame. They do not have to worry about unexpected or hidden additional costs. This makes payment on invoice a transparent and cost-effective payment option.

Simple processing

Another benefit of payment on invoice for customers is the ease of the entire purchasing process. Customers can place orders quickly because there is no need to enter extensive payment information, such as credit card numbers or bank account information. They only need to provide their name and address, which makes the ordering process much easier and safer. In addition, retailers can ship the goods immediately after the customer places the order, since retailers do not have to wait to receive payment.

Security and trust

When paying on invoice, customers do not have to pay the invoice amount immediately. They can receive the goods first, check them out, and make sure they meet their expectations. This flexibility gives customers peace of mind and builds trust in the online store.

No risk in the event of defects

When paying on invoice, customers bear no financial risk if the goods are defective, damaged, or faulty. Customers can usually return items without any problem. Since customers pay after delivery, retailers do not need to refund payments already made. Customers can, therefore, exercise their right to return goods at any time without having to worry about financial penalties.

What are the disadvantages for customers?

There are also some disadvantages for customers paying on invoice:

Credit check

Some businesses run credit checks on their customers before allowing them to pay on invoice. If the credit rating is negative (e.g., due to past payment defaults), businesses can refuse to accept payment on invoice. In such cases, customers must resort to other payment methods. This means they lose the opportunity to pay for the goods after delivery.

Complex payment tracking

When customers make multiple invoice payments in a short period of time, it can be difficult to keep track of open invoices and due dates. Individual invoices can be overlooked or forgotten. This becomes especially problematic when invoices are spread across different platforms or businesses, use different payment methods, and have varying due dates.

Reminder fees

Customers might have to pay reminder fees and default interest if they aren’t careful. This occurs when the customer does not transfer the amount due within the agreed payment period. This can be an unpleasant financial burden for customers, as they have to bear additional costs on top of the original invoice amount.

No immediate discount

Some retailers offer their customers a discount if they pay immediately upon ordering, such as when they pay by credit card or instant bank transfer. This discount is not available when paying on invoice.

Payment on invoice: Advantages and disadvantages for retailers and customers

Why retailers in Germany should offer payment on invoice

It is advisable for retailers in Germany to offer payment on invoice as a payment option because it gives customers a feeling of security. This can encourage them to make purchases and is recognized by many German companies as a decisive factor for purchase completion. This is especially relevant if it is the first purchase from a specific shop.

In addition, payment on invoice remains a very popular option in this country. In 2023, more than a quarter of all online purchases in Germany were paid on invoice. The main disadvantages for retailers—payment defaults, increased administrative costs, and the risk of fraud—can be mitigated with appropriate measures.

Retailers should implement effective risk management to counter the financial risk of late or unpaid invoices. Pre-sale credit checks are one of the most important measures. In addition, a structured reminder system should notify customers of outstanding invoices in the event of late payment or send automated dunning notices. It is also possible to create incentives for early payment, such as a discount for payment within a few days.

Strategies to reduce the disadvantages

To keep the increased administrative costs as low as possible, retailers should consider an automated accounting solution or receivables management software such as Stripe Invoicing. Invoicing allows you to monitor the entire payment process, automatically send payment reminders, and make customer communication as efficient as possible.

It is difficult to prevent customers from ordering goods for one-time use only. However, strictly regulated return management can reduce the risk of such fraud. Businesses can also charge fees for returns. However, a more customer-friendly approach is to reserve the option to purchase on account for existing customers. In this case, only new customers would have to use alternative payment options, and the business rewards returning customers for their loyalty.

Address recognition and identity checks can also ensure the information provided is correct. Finally, the use of AI can help identify suspicious purchasing patterns early on. This technology is able to detect unusual transactions or purchasing behavior.