Payment reminder or dunning letter? The difference
Legally, there is no difference between a payment reminder and a dunning letter: what matters is not the heading, but whether you clearly ask your customer to pay after the due date. In everyday business, the "payment reminder" is simply the polite form of the first dunning letter. The law does not prescribe three dunning letters, and in many cases your customer even falls into default without any dunning letter at all.
Is a payment reminder a dunning letter?
Yes, if it fulfils the function of a dunning letter. Under § 286(1) BGB (German Civil Code), a debtor is in default if they fail to pay following a reminder from the creditor issued after the claim has become due. The law does not require any particular form or designation.
A communication therefore takes effect as a dunning letter if it
- is sent after the claim has become due,
- clearly identifies the outstanding claim and
- unambiguously requests payment.
Whether it is headed "Payment reminder", "Dunning letter" or "Outstanding invoice" makes no difference. A friendly tone does no harm. Vague wording, however, such as merely asking the customer to check whether the invoice has arrived, may not be enough.
When does your customer fall into default?
There are three ways a customer can fall into payment default:
1. Through a dunning letter
The standard case: the invoice is due, you send a dunning letter, the customer does not pay. Default begins once the dunning letter is received.
2. Without a dunning letter if there is a fixed date
Under § 286(2) BGB, a dunning letter is unnecessary, among other things, if a calendar date has been set for payment. This is the case, for example, if "payment by 15 October" has been agreed in the contract. If the date passes, default occurs automatically. The same applies if the customer seriously and definitively refuses to pay.
3. Automatically after 30 days
Under § 286(3) BGB, the debtor of a claim for payment is in default at the latest if they do not pay within 30 days of the due date and receipt of the invoice. This applies to businesses without further ado. Consumers only fall into default in this way if you have specifically drawn their attention to this consequence in the invoice.
In practice, this means: state a specific payment date on the invoice and, for private customers, include the note on the 30-day rule. Then you do not need a dunning letter to trigger default.
What are the consequences of default?
From the start of default, you can claim default interest and compensation for the damage caused by the default.
Default interest
Under § 288 BGB, default interest is
- 5 percentage points above the base rate if a consumer is involved,
- 9 percentage points above the base rate for claims for payment between businesses.
The base rate under § 247 BGB changes on 1 January and 1 July each year. The Deutsche Bundesbank publishes the current value. So calculate with the rate that applies to the relevant period.
40-euro default lump sum
If your debtor is not a consumer, you can also claim a lump sum of 40 euros (§ 288(5) BGB). The lump sum is offset against later legal enforcement costs, such as lawyers' fees.
Dunning fees
You may only claim dunning fees as damage caused by default, i.e. for dunning letters that you send after default has occurred. The dunning letter that triggers default in the first place costs the customer nothing. In addition, only costs actually incurred, such as postage and materials, are reimbursable. Courts often only allow flat-rate dunning fees at a low level. So stick to moderate amounts.
What belongs in a dunning letter or payment reminder?
So that your customer can clearly identify the claim, every dunning letter should contain:
- your name and address, as well as the customer's details
- invoice number and invoice date
- a brief description of the service provided
- the outstanding amount
- a clear request for payment with a new deadline, for example seven or ten days
- your bank details
- at later stages: default interest, the lump sum and costs incurred
In Germany, two to three dunning stages are common. This is a convention, not an obligation. It is important that you document receipt and deadlines in case you later take legal action.
And if the customer still does not pay?
If the payment reminder and dunning letters are unsuccessful, the next step is usually the court dunning procedure. You can read how the application works and what costs arise in the article Court payment order: process and costs.
Creating dunning letters with faktoora
In faktoora, you generate dunning letters for overdue invoices directly from the invoice overview and send them to your customer. You can customise the dunning texts in the settings, and the dunning status of each invoice remains visible at a glance. The guide Creating dunning letters explains it step by step, and the article on the reminder status column describes how the dunning stage is displayed.
Note: This article is for general information purposes only and does not replace legal advice.
Frequently asked questions
Is a payment reminder a dunning letter?
Legally, yes, if it is sent after the due date and clearly requests payment. The designation is irrelevant.
Do I have to send three dunning letters?
No. The law does not require a specific number of dunning letters. A single dunning letter after the due date is sufficient to trigger default.
Payment reminder or dunning letter: which do I send first?
That is up to you. Many businesses start with a payment reminder out of courtesy. Legally, it has the same effect as a dunning letter.
May I charge fees for the first dunning letter?
No, if it is this dunning letter that triggers default. You can claim costs for later dunning letters as damage caused by default, insofar as they were actually incurred.
How high is default interest?
5 percentage points above the base rate if a consumer is involved, and 9 percentage points between businesses. The Deutsche Bundesbank publishes the current base rate.