The Federal Association of German Debt Collection Agencies (Bundesverband Deutscher Inkasso-Unternehmen, or BDIU) includes more than 400 companies from the field of receivables management throughout Germany. In 2024, these companies recorded 33 million new cases, representing an increase of almost 20% compared with the previous year. This means more and more invoices in Germany remain unpaid, and the companies affected are increasingly relying on professional debt collection agencies to recover their receivables.

In this article, we explain debt collection in Germany, how it works, and its requirements. We also clarify the most important costs and provide tips for automating collection procedures.

What’s in this article?

• What does debt collection mean?
  
• How does the debt collection procedure work in Germany?
  
• What are the requirements for the debt collection procedure?
  
• How can German companies automate debt collection?
  
• What costs are incurred with the debt collection procedure?
  
• How Stripe Invoicing can help
  

What does debt collection mean?

In Germany, debt collection is a process where a debt collection agency attempts to recover outstanding debts from a debtor on behalf of a creditor. For example, a creditor can initiate a debt collection procedure if a customer purchases and receives a product but fails to pay for it. The objective of the collection procedure is to recover outstanding payments without legal action. If this is not possible, the creditor can initiate legal collection proceedings.

How does the debt collection procedure work in Germany?

The debt collection procedure is a multistage process that is largely determined by the circumstances and conduct of the customers (i.e., debtors). Generally, the debt collection procedure is divided into the following steps:

Payment reminder and overdue notice

If an invoice is overdue, the creditor should first send the customer a reminder with a new invoice deadline. To make it easier for customers to pay, the creditor can also enclose the original invoice with this polite request for payment.

If the creditor does not receive payment, a more formal warning will follow. With this, the creditor informs the customer about the overdue payment and sets a clear deadline. At this point, the creditor can also refer to possible collection measures. The creditor can also charge late fees in the event of late payment. These serve to cover costs incurred, such as printing the overdue notice and postage fees.

To simplify invoicing, you can use Stripe Invoicing, a solution that allows you to send invoices online in just a few clicks and automate your invoicing, among other things. Invoicing automatically tracks invoice status, sends payment reminders, and processes refunds, so you can keep your cash flow under control.

Collection procedure initiation

If the customer ignores overdue notices, the creditor can initiate the debt collection procedure. To do so, the creditor contacts a debt collection service provider and submits all relevant documents, such as invoices, overdue notices, and previous correspondence. Many service providers offer online portals for this purpose where creditors can upload documents and view processing status.

Assessment of the economic situation

A key part of the debt collection procedure is analyzing the customer’s financial situation. Many debt collection agencies carry out this assessment and provide valuable insights about why the customer has not made a payment. Relevant factors include current liquidity, existing payment defaults with other creditors, or problematic business situations.

The economic assessment helps to determine a strategy for further communication with the customer. It can also serve as a basis for deciding whether and how to enforce payment claims.

Additional steps

The debt collection agency begins by making initial contact in writing. In most cases, it sets a final payment deadline and references possible legal action. In some cases, a letter from a debt collection agency is sufficient to persuade the customer to pay. Collection agencies can also offer installment payments or payment deferrals.

Some debt collection service providers also offer debt sales. In this process, the provider assumes the claim in full and collects it in its own name. The creditor receives the agreed amount and relinquishes further enforcement.

If the customer still does not pay, the debt collection agency can initiate legal collection proceedings. The relevant district court serves the payment order. If no one lodges an objection, the agency can apply for an enforcement order, which enables the compulsory enforcement of the judgment. This includes seizing customer accounts, wages, or tangible assets.

What are the requirements for the debt collection procedure?

For a creditor to initiate debt collection proceedings, certain conditions must be met:

• Legality of the claim
  First, the claim must be justified and undisputed. This means that the creditor and the customer have a business relationship in which a product or service was sold and delivered. There must be no outstanding complaints from customers (e.g., in the form of warranty defects or other complaints). If the customer reports defects in the delivered goods or services, the claim might not yet be valid or justified.

• Correct invoicing
  The invoice must have been issued correctly and received by the customer. All required mandatory information must be noted on the invoice. If important information is missing, the claim could be considered incomplete, which complicates the collection procedure.

• Payment deadline exceeded
  Another necessary prerequisite for initiating a debt collection procedure is that the payment deadline has been exceeded. If this is the case, the customer is in default of payment. From this point on, the creditor can initiate the collection procedure. If an individual payment term was not agreed upon, the statutory term of 30 days after invoicing applies.

How can German companies automate debt collection?

Companies can significantly simplify and automate the collection process through digital solutions. With Stripe Invoicing, you can quickly create invoices and send them automatically. This can save time and ensure that all invoices contain the required mandatory information. After creating and sending the invoice, Invoicing automatically tracks the payment status and sends payment reminders, if necessary. No manual intervention on your part is required.

Another advantage of Invoicing is the ability to fully automate the overdue notice process. If an invoice is overdue, the system automatically sends overdue notices. This reduces the administrative burden on companies and, at the same time, ensures that outstanding claims are settled more quickly.

If payment is still not received despite multiple reminders, the company can still use an external debt collection service to collect the outstanding amount. Invoicing offers simple integration with collection services for this purpose.

What costs are incurred with the debt collection procedure?

Various costs are incurred when a debt collection agency gets involved. Generally, customers (i.e., debtors) are responsible for these costs:

• Primary claim: The debtors must settle the outstanding amount owed.

• Penalty interest on late payment: Creditors can charge late payment penalty interest in the event of late payment. However, for claims against private individuals, this interest rate cannot exceed five percentage points above the base rate. In legal transactions that do not involve private individuals, the interest rate for claims for remuneration is capped at nine percentage points above the base rate.

• Fees for overdue notices: Collection agencies can also charge fees for sending overdue notices. While the first overdue notice is usually free of charge, the collection agency might charge around €2.50 per overdue notice, starting with the second one.

• Telephone and postage costs: Additional costs—such as telephone charges and postage costs for sending overdue notices and other correspondence—can also be passed on to debtors.

• Costs for address verification: In some cases, the debtor’s address might not be known. In this case, the debt collection agency must carry out an address search, which also carries costs.

To counteract excessive claims by debt collection agencies, debt collection law was reformed in 2021. Since then, the fee range has been clearly defined as between 0.5–2.5, whereby the fee can only exceed a factor of 1.3 in the case of extensive or difficult work (see Lawyers’ Fees Act [Rechtsanwaltsvergütungsgesetz, or RVG], No. 2300).

Another important aspect of the reform is preventing double billing of collection fees. If a creditor has commissioned both a debt collection agency and legal counsel to collect the debt, only the costs of a single legal counsel can be incurred. The reform prevents double billing of collection fees and legal fees.

How Stripe Invoicing can help

Stripe Invoicing simplifies your accounts receivable (AR) process—from invoice creation to payment collection. Whether you’re managing one-time or recurring billing, Stripe helps businesses get paid faster and streamline operations:

• Automate accounts receivable: Easily create, customize, and send professional invoices—no coding required. Stripe automatically tracks invoice status, sends payment reminders, and processes refunds, helping you stay on top of your cash flow.
  
• Accelerate cash flow: Reduce days sales outstanding (DSO) and get paid faster with integrated global payments, automatic reminders, and AI-powered dunning tools that help you recover more revenue.
  
• Enhance the customer experience: Deliver a modern payment experience with support for 25+ languages, 135+ currencies, and 100+ payment methods. Invoices are easy to access and pay through a self-serve customer portal.
  
• Reduce back-office workload: Generate invoices in minutes and reduce time spent on collections through automatic reminders and a Stripe-hosted invoice payment page.
  
• Integrate with your existing systems: Stripe Invoicing integrates with popular accounting and enterprise resource planning (ERP) software, helping you keep systems in sync and reduce manual data entry.
  

Learn more about how Stripe can simplify your accounts receivable process, or get started today.