Whether intentionally or unintentionally, customers don’t always pay their invoices on time. Outstanding receivables pose logistical and communications challenges for businesses, which is why it’s worth systematizing the relevant processes as much as possible. This requires knowledge of the underlying legal framework.

This article will tell you what qualifies as a late payment and how you can minimize the risk of invoices going unpaid. We’ll also walk you through what you’re allowed to charge in default interest, how to correctly handle dunning letters, and how judicial dunning proceedings work.

What’s in this article?

• What qualifies as a late payment?
  
• What default interest rates are allowed?
  
• Do you have to issue a payment reminder before proceeding to dunning?
  
• How do judicial dunning proceedings work?
  
• What are the documentation requirements for dunning letters?
  
• How can you avoid late payments?
  

What qualifies as a late payment?

A payment is considered late if a debtor fails to settle an account payable on time. The legal requirements and consequences of payment default are regulated by Section 286 of the German Civil Code (BGB). The aim of these regulations is to protect creditors against the negative impacts of delayed payment or nonpayment.

The basic prerequisite for a late payment is that a claim for payment exists and is due. Typically, the creditor is also required to send a dunning letter for this claim. A dunning letter is a written request for payment sent to debtors demanding that they settle their outstanding account. Creditors can send a dunning letter as soon as a customer misses the payment deadline indicated on the invoice.

According to Section 286, Paragraph 2 of the BGB, dunning is not a prerequisite for an account to default if a concrete due date was set. The same applies if the debtor seriously and definitively refuses performance, or if special circumstances justify immediate default. According to Section 286, Paragraph 3 of the BGB, debtors are considered in default of payment no later than 30 days after the due date and receipt of an invoice. Private individuals, however, fall under this regulation only if the legal consequences of nonpayment are explicitly noted on the invoice. Debtors generally aren’t considered to be in default if their nonpayment is due to circumstances for which they’re not responsible.

What default interest rates are allowed?

A late payment has legal consequences. Debtors are obligated under Section 288, Paragraph 1 of the BGB to pay default interest. This interest compensates creditors for the negative impact the late payment has on their finances, such as being unable to use the sum owed for their own interest-bearing investments or other purposes.

The rate of default interest is different for individual consumers and businesses. In transactions with private individuals, the statutory default interest rate is 5 percentage points above the base interest rate. In accordance with Section 247 of the BGB, the base interest rate is set twice a year by the central bank of Germany, Deutsche Bundesbank, and published in the Federal Gazette. In January 2026, this rate was set to 1.27%, resulting in a rate of 6.27% per annum (p.a.) for consumer transactions; per annum means this interest rate applies to a full year. To work out the interest due for the actual period of default, then, the creditor needs to adjust the annual percentage for the specific number of days that have passed without payment.

The law stipulates a separate rate of default interest for transactions that do not involve private individuals. Accordingly, this rate is applied to outstanding invoices issued to businesses, public authorities, and other nonprivate debtors. This interest rate is 9 percentage points above the base rate, and in January 2026 was set to 10.27% p.a.

Payment default example: Default interest on a B2C transaction

A private customer has had an outstanding invoice of €1,200 for the purchase of a laptop since February 1, 2026, and you send them a dunning letter on February 20, 2026. Here, the default period is 19 days. There are two steps to calculating the default interest:

1. Calculate the annual default interest: €1,200 x 6.27% = €75.24
   
2. Adjust interest for the default period of 19 days: (€75.24 ÷ 365) x 19 = €3.92
   

In this example, the default interest for the 19 days is €3.92.

Payment default example: Default interest on a B2B transaction

A €20,000 invoice issued to a business for the purchase of a CNC milling machine has been outstanding since March 1, 2026. You send them a dunning letter on March 22, 2026. Here, the default period is 21 days. Again, there are two steps to calculating the default interest, in this case at a rate of 10.27% p.a.:

1. Calculate the annual default interest: €20,000 x 10.27% = €2,054
   
2. Adjust interest for the default period of 21 days: (€2,054 ÷ 365) x 21 = €118.18
   

In this example, the default interest for the 21 days is €118.18.

Do you have to issue a payment reminder before proceeding to dunning?

A payment reminder is a written request for payment that a creditor can send to a customer prior to initiating dunning, if a payment deadline has passed. While a dunning letter constitutes a formal demand for payment, a payment reminder is generally worded in a less binding manner. There are no formal requirements and—unlike dunning—a payment reminder does not have to include a concrete due date.

You are not allowed to demand additional fees for sending a payment reminder. During dunning, on the other hand, you can impose dunning charges to cover costs for materials, delivery, return debits, or address verification.

A payment reminder, therefore, is not mandatory. It is merely an optional, customer-friendly step that is preferable to dunning as a way of politely nudging a customer to settle their outstanding account.

How do judicial dunning proceedings work?

Businesses in Germany have a number of options for collecting their outstanding debts once a payment deadline has passed. In addition to either suing or employing factoring, they can also initiate judicial dunning proceedings. However, this step should only be taken if the debtor has failed to respond to multiple dunning letters.

Judicial dunning proceedings can result in the issuing of a payment order that requires the debtor to make payment. Payment orders can be applied for in writing or online. Applications must contain the full details concerning the parties, the amount owed, interest, any ancillary claims, and the due date. Once the court has reviewed the application, it will serve the payment order and notify the applicant.

Once the payment order has been served, the debtor has the option to pay the debt or file an objection. If the debtor fails to respond within six months, the creditor can apply for an enforcement order. An enforcement order allows a creditor to engage the services of an enforcement agency that can take steps such as seizing accounts, wages, or other assets. If the debtor’s whereabouts are unknown, the enforcement order can also be served publicly, such as through the posting of an official notice in the court’s online information system.

One of the benefits of the automated judicial dunning procedure is that it suspends the statute of limitations on the claim. When a payment order is served, the statute of limitations is suspended in accordance with Section 204, Paragraph 1, No. 3 of the BGB. This means that even debts that are about to become statute-barred can be secured. Judicial dunning proceedings are therefore a quick and cost-effective way of avoiding liquidity shortages and collecting on outstanding bills through legally secure means, especially for small and medium-sized enterprises.

What are the documentation requirements for dunning letters?

Dunning letters constitute business-related documentation. You must therefore document dunning letters in a traceable and auditable fashion in accordance with the GoBD (“Principles for the proper keeping and retention of books, records, and documents in electronic form”). Every dunning letter must be recorded in full, clearly dated, and tamper-proof.

You should archive both paper documents and digital files. In the case of electronic documents, subsequent changes must either be impossible or must be logged in full. The documentation requirement also applies to transactions involving any dunning fees.

Additionally, your documentation must be organized in such a way that it’s accessible at any time in the event of an audit. Keep complete records of all transactions, link dunning letters to the corresponding invoices, and retain proof of delivery. This is the only way you can demonstrate that your dunning processes are fully compliant with laws and tax regulations.

GoBD-compliant documentation not only ensures legal standing, but also facilitates receivables management, as you can transparently track open items and dunning levels at any time.

How can you avoid late payments?

The BGB contains clear rules to protect creditors. Nevertheless, collecting outstanding payments often remains a challenge in Germany, especially for small and medium-sized enterprises. Automating the relevant processes can help you keep on top of payment deadlines, collect payments, and flag outstanding bills with debtors. Systematic workflows significantly reduce the risk of late payments.

One effective way to avoid late payments is to use digital payment solutions. With Stripe Payments, you can initiate payments instantly by card, Apple Pay, or SEPA Direct Debit—eliminating the delays that often occur with manual bank transfers. Stripe Billing can detect failed payments and initiate retries. Recurring attempts to collect debt via direct debit can be automated, increasing the likelihood of successful payment.

If payments remain outstanding, Stripe can help you organize your receivables management. Payment processes, outstanding invoices, and repeated collection attempts can be centrally controlled and documented. This allows companies to reduce manual errors and keep a better eye on their cash flow.