Payment Default: The Complete Guide

When clients do not pay their invoices, it is frustrating - and expensive. This guide shows you step by step how to proceed professionally: from the friendly reminder to the court order.

---

When Is a Client in Default?

Payment default begins automatically:

Example

Invoice from March 1 with 14-day payment terms:

• Due: March 15
• Default from: March 16

---

The 4 Stages of the Reminder Process

Stage 1: Payment Reminder (Friendly)

When: 3-7 days after due date

A friendly reminder - maybe the invoice was just overlooked.

Subject: Friendly Reminder - Invoice No. 2025-042

Dear [Name],

While reviewing our accounts, we noticed that payment
for the invoice below is still outstanding:

Invoice No.: 2025-042
Invoice Date: March 1, 2025
Amount: €1,190.00
Due since: March 15, 2025

If you have already made the payment, please
disregard this notice.

Otherwise, we kindly ask for payment within the next
7 days to the account you have on file.

Please contact us if you have any questions.

Best regards,
[Your Name]

Stage 2: First Reminder

When: 7-14 days after payment reminder

Now it becomes more formal. You can charge reminder fees from here.

Subject: 1st Reminder - Invoice No. 2025-042

Dear [Name],

despite our payment reminder of [Date], the following
invoice remains unpaid:

Invoice No.: 2025-042
Invoice Date: March 1, 2025
Original Amount: €1,190.00
Reminder Fee: €5.00
Late Interest: €8.72
Total Amount: €1,203.72

Please transfer the total amount within 10 days
to the following account:

IBAN: DE89 3704 0044 0532 0130 00
Reference: INV 2025-042

If payment is not received, we will unfortunately
be forced to take further action.

Best regards,
[Your Name]

Stage 3: Second Reminder (Final Reminder)

When: 10-14 days after first reminder

Now it should be clear that this is serious.

Subject: 2nd and Final Reminder - Invoice No. 2025-042

Dear [Name],

unfortunately, despite our previous reminders, we have
not yet received payment.

Outstanding amount including fees: €1,215.00

We hereby request you one final time to pay the amount
within 7 days.

If payment is not received on time, we will proceed
without further notice to:

• Engage a debt collection agency OR
• Initiate court proceedings

Any additional costs incurred will be charged to you.

Best regards,
[Your Name]

Stage 4: Debt Collection or Court Proceedings

When: 7+ days after final reminder

Now you have two options:

---

Calculating Late Interest

From the start of default, you can charge interest.

Interest Rates (2025)

Calculation Formula

Late Interest = Invoice Amount × Interest Rate × Days / 365

Example Calculation

• Invoice Amount: €1,000
• Days in Default: 30
• Interest Rate B2B: 12.12%

€1,000 × 0.1212 × 30 / 365 = €9.96

---

Reminder Fees: What Is Allowed?

You may charge reasonable reminder costs:

Note: Fees must reflect actual costs. Courts are stricter with consumers.

---

Court Payment Order: How It Works

Step 1: File Application

Online via the court portal or by paper form at the responsible court.

Step 2: Pay Costs

Step 3: Order Is Served

The court serves the payment order to the debtor.

Step 4: Possible Responses

Step 5: Enforcement Order

Once final, you have an enforceable title (valid 30 years). The bailiff can then seize assets.

---

Tips to Prevent Payment Defaults

1. Advance Payment or Deposit

For new customers or larger projects:

• 30-50% deposit before project start
• Partial invoices for long projects

2. Short Payment Terms

• 7-14 days instead of 30 days
• Discount for early payment (2% if paid within 7 days)

3. Credit Check

Check creditworthiness before large orders:

• Credit agencies
• Credit reports
• Company register extract

4. Automatic Payment Reminders

With Clever Invoice:

• Automatic reminder 3 days after due date
• Pre-set escalation levels
• Overview of all outstanding items

---

Legal Framework

BGB § 286 - Default of the Debtor

The debtor is in default if they do not perform upon a reminder from the creditor.

BGB § 288 - Interest on Arrears

A monetary debt is to be paid with interest during default at 5 percentage points above the base rate. For legal transactions not involving a consumer, the rate is 9 percentage points above the base rate.

BGB § 280 - Damages for Breach of Duty

If the debtor breaches a duty, the creditor may demand compensation for the resulting damage.

---

Communicating with Delinquent Clients

Dos

✓ Stay professional and objective ✓ Communicate in writing (traceability) ✓ State deadlines clearly ✓ Show consequences

Don'ts

✗ Get personal or threaten ✗ Publicly shame them ✗ Set unrealistic deadlines ✗ Wait too long

---

Debt Collection with Clever Invoice

Clever Invoice automates your reminder process:

1. Outstanding items at a glance - Dashboard shows overdue invoices
2. Automatic reminders - According to your rules
3. One-click reminders - Professional reminder letters
4. Escalation levels - From friendly to final
5. Interest calculator - Automatic calculation

---

Conclusion: Professional and Consistent

Payment default is frustrating, but manageable with the right process:

1. React quickly - Do not wait weeks
2. Escalate - From friendly to firm
3. Document - Every reminder in writing
4. Be consistent - Take action on non-payment
5. Prevent - Deposits, short payment terms

With a clear reminder process and the right tools, you significantly increase your payment rate.