Dunning notice

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What is a Dunning Notice?

A dunning notice is a formal request for payment sent by a creditor to a debtor when an invoice has not been paid on time. It serves to remind the debtor of the outstanding amount and prompt them to make the payment.

From a legal perspective, a dunning notice is a unilateral notice that requires receipt and puts the debtor in default (Section 286 (1) BGB). This means that from this point onward, the debtor may be liable for reminder fees, default interest, or further legal action.

In business, dunning notices are a common part of receivables management. Companies send dunning notices to collect outstanding payments before involving a debt collection agency or initiating legal proceedings.

When is a Dunning Notice necessary?

A dunning notice is necessary when a payment is overdue and the creditor wants to officially request settlement of the debt.

Key points to consider:

  • No fixed timing for reminders: A creditor can send a reminder immediately after the payment deadline has passed.

  • Not always required: In some cases, a debtor enters default automatically without needing a reminder (e.g., if the invoice specifies a due date).

  • Precondition for default interest: Without default, interest on late payments usually cannot be claimed.

When is a Dunning Notice not required?

A debtor automatically falls into default without a dunning notice in the following cases:

  • The invoice includes a clear payment deadline (e.g., “Payable by March 15, 2025”).

  • The payment is between businesses (B2B), and the invoice remains unpaid 30 days after the due date and receipt (Section 286 (3) BGB).

  • The debtor explicitly refuses to make the payment.

How does a Dunning Notice differ from a friendly payment notice?

Many people use the terms interchangeably, but there are important distinctions, especially from a legal standpoint.

  • It is an informal and usually polite request to settle an outstanding invoice.

  • It has no legal impact and does not put the debtor in default.

  • It is often used as the first step in the collection process to encourage payment without pressure.

  • It is an official request to settle an overdue payment.

  • It can lead to default interest and reminder fees.

  • Legally, it puts the debtor in default if they are not already in default automatically.

Many businesses first send a friendly payment notice to maintain a positive business relationship. If payment is still not received, a formal reminder follows, which is legally binding. In some cases, an immediate reminder is necessary to initiate further legal steps quickly.

How many payment reminders are legally required?

A common misconception is that three reminders must be sent before taking further action. In reality, no such legal requirement exists—just one reminder is enough to put the debtor in default.

In some cases, not even one reminder is necessary, such as when a clear payment deadline is stated on the invoice (“Payable by March 15, 2025”). In this case, the debtor enters default automatically after the deadline passes.

However, many businesses send multiple reminders as a courtesy or to maintain customer relationships before involving a collection agency or taking legal action. A typical process might look like this:

1. Friendly payment notice – A polite reminder without legal consequences.

2. First reminder – An official request for payment with a warning of default.

3. Second reminder – A final warning, including reminder fees and default interest.

4. Final reminder or collection agency involvement – Notice of legal action or handover to a debt collection agency.

The number of reminders sent depends on the company's collection process. Some companies escalate to a collection agency after just one reminder, while others give customers more time.

What should a Dunning Notice include?

For a reminder to be legally effective, it must meet certain requirements. Although there is no legally prescribed format, some key details are necessary to ensure the debtor can clearly identify the outstanding claim and that the reminder fulfills its purpose.

Essential elements of a dunning notice:

  • Sender and recipient: Names and addresses of both parties.

  • Invoice number and date: To specify the outstanding claim.

  • Outstanding amount: The exact sum due.

  • Due date and deadline: By when the payment must be made.

  • Consequences of default: Information on possible default interest, reminder fees, or legal action.

  • Payment options: Bank details or alternative payment methods for easy settlement.

A dunning notice can be sent via letter, email, or even SMS. However, it is important to ensure proof of delivery – registered mail or another traceable method is recommended for high-value claims or disputes.

How should a Dunning Notice be worded?

The tone of a reminder can vary depending on the escalation stage. The first reminder is often still polite, while later reminders become firmer and include specific references to default interest or collection measures.

What costs can arise from a Dunning Notice?

If an invoice is not paid on time, the creditor can charge the debtor additional costs, which arise once the debtor is in default – either through a reminder or automatically when a specified payment deadline is exceeded.

Common costs associated with payment reminders:

  • Reminder fees: The creditor may charge a flat fee for administrative expenses, but this must be reasonable and not include excessive additional costs.

  • Default interest: Legally regulated and currently set at:

    • For individuals (B2C): 5 percentage points above the base rate.

    • For businesses (B2B): 9 percentage points above the base rate.

  • Collection fees: If the claim is passed to a debt collection agency, additional charges may apply, often aligned with statutory attorney fees.

  • Legal and court costs: If legal proceedings are initiated, further costs for a payment order, lawyer, or lawsuit may be incurred.

Not every dunning fee is automatically permissible. Key points to note:

  • A reminder may include fees after the debtor is in default, provided they are reasonable. The first reminder can be free but does not have to be.

  • Businesses must prove that actual expenses were incurred due to the reminder.

  • Excessive or arbitrary fees without justification may be invalid.

Can a Dunning Notice be sent via email?

Creditors often wonder if an email reminder is legally valid or if it must be sent by post. There are no legal restrictions on how a reminder is sent – it can be delivered via email, letter, fax, or even SMS.

When is an email dunning notice legally secure?

  • If the debtor has previously communicated with the creditor via email.

  • If the email address can be clearly linked to the debtor.

  • If receipt of the email can be confirmed (e.g., through a read receipt).

When is postal delivery better?

  • For high-value claims where proof of delivery is needed.

  • If the debtor has repeatedly ignored reminders.

  • If legal proceedings may follow, requiring proof of notification.

To avoid disputes, a combination of email and postal dunning notices can be beneficial. For larger claims, registered mail is recommended to ensure proof of receipt.

A well-structured dunning process is crucial to collecting outstanding payments while maintaining good customer relationships. Understanding the legal framework helps businesses ensure compliance and take appropriate action when necessary.