This article is for general informational purposes only and does not constitute legal advice. For legal questions about your specific situation, please consult a qualified lawyer or tax advisor.
Why Unpaid Invoices Hit Freelancers Hard
As a freelancer or small business owner, unpaid invoices are more than an annoyance. You've done the work, but the money isn't there. Unlike larger companies, you don't have a cash buffer to absorb the hit. Every overdue invoice directly affects your liquidity.
The good news: a clear dunning process recovers most outstanding payments. And the sooner you act, the higher your success rate.
When Is an Invoice Overdue?
Before you send a reminder, you need to know when your client is actually in default:
- Payment term on the invoice: If it says "payable within 14 days," that's your due date.
- No payment term specified: Under §286(3) BGB (German Civil Code), your client defaults 30 days after receiving the invoice. For consumers, this only applies if you explicitly noted it on the invoice.
- Due immediately: Without any other agreement, invoices are technically due immediately (§271 BGB). But default only kicks in after a reminder or after 30 days.
The Dunning Process: Step by Step
There's no legal requirement to send multiple reminders. Legally, a single reminder is enough to trigger default. In practice, a three-step process works best:
1. Payment reminder (friendly)
Send it 1 to 5 days after the due date. Often the invoice simply got overlooked.
- Tone: friendly and factual
- Reference the invoice number, date, and amount
- Set a new deadline (e.g., 7 days)
- No mention of fees or consequences
2. First dunning letter (firm)
If nothing comes in after the reminder, follow up 7 to 14 days later with the first formal dunning letter.
- Tone: firm but professional
- Again reference the invoice number, date, and amount
- Set a new deadline (e.g., 10 days)
- Note that further steps may follow if payment isn't received
3. Final dunning letter (with consequences)
If there's still no payment, send the final letter 7 to 14 days later.
- Tone: clear and unambiguous
- Set a final deadline (e.g., 7 days)
- Announce that you will involve a debt collection agency or lawyer if payment isn't received
- Optional: mention court proceedings
What Belongs in a Dunning Letter?
For your dunning letter to be formally correct and effective, it should include:
- Your name and address (as creditor)
- Client's name and address (as debtor)
- Reference to the original invoice: invoice number, date, service period
- Outstanding amount
- Original due date
- New payment deadline with a specific date
- Bank details (so your client doesn't have to look them up)
- Dunning stage (reminder, first letter, final letter)
- Consequences of non-payment (from the second letter onward)
Template: First Dunning Letter
Here's a template you can adapt:
Payment Reminder / Dunning Letter
Dear [Name],
we have not yet received payment for the following invoice:
- Invoice number: [XXXX]
- Invoice date: [DD.MM.YYYY]
- Amount: [X,XXX.XX EUR]
- Due since: [DD.MM.YYYY]
Please transfer the outstanding amount to the account listed below by [new date].
If your payment has crossed with this letter, please disregard it.
Best regards, [Your name]
Adjust the tone to match the stage. Friendlier for the initial reminder, more direct for the final letter with a clear outline of next steps.
7 Tips to Prevent Late Payments
The best dunning letter is one you never have to send:
- Clear payment terms on every invoice. Write the actual due date on the invoice, not just "payable immediately."
- Send invoices right away. The faster the invoice goes out, the faster you get paid. Don't wait until the end of the month.
- Partial payments for large projects. Agree on milestone payments or an upfront deposit. That way you're not carrying all the risk.
- Check creditworthiness for new clients. For larger contracts, a quick check before you start is worth it.
- Payment terms in your quotes. Clarify payment conditions in the quote, not just on the invoice.
- Automatic payment reminders. Let your invoicing tool alert you when an invoice is overdue. The guide to automated invoicing shows how to automate this and other steps.
- Look professional. Clean, complete invoices get paid faster than hand-made PDFs.
When to Involve a Collection Agency or Lawyer
If even the final dunning letter gets no response, you have three options:
- Hire a collection agency: Makes sense for claims above roughly 100 EUR. The agency handles the entire process. If successful, the debtor bears the costs.
- Engage a lawyer: Often more effective than collection agencies, because a lawyer's letter carries more weight. Worth it for larger amounts.
- Court dunning procedure: You can apply for a Mahnbescheid (court payment order) online at mahngerichte.de. No lawyer needed, and fees start at around 36 EUR depending on the claim amount.
Managing Reminders Efficiently With a Tool
Manually tracking overdue invoices and dunning deadlines is tedious and error-prone. An invoicing tool helps you:
- See open invoices and due dates at a glance
- Match incoming payments to invoices
- Standardize payment terms and deadlines
- Create professional, complete, and compliant invoices
Related Reading
- The complete guide to writing invoices: Set up mandatory fields and payment terms properly.
- Quote and invoice templates: Put payment terms in writing before the project starts.
- Cancellation invoices in Germany: What to do when an invoice needs correction.
- Automated invoicing in the cloud: Send payment reminders and recurring invoices automatically.
Want to stay on top of your invoices and payment deadlines? Try revoBill, the simple invoicing tool for freelancers and small businesses.