The Dunning Process: How to Get Past Due Invoices Paid
Every business has had to contend with late-paying customers or clients. Nobody in your accounts receivable department looks forward to chasing down missed payments. (Well, almost nobody, perhaps.)

Whether due to a declined credit card or customer oversight, late payments are inconvenient to your business’s cash flow. You’re entirely entitled to track them down through courtesy calls or letters.


But if they don’t workyou may need to commence dunning – meaning you'll have to make progressively stronger demands for payment.

What is the Dunning Process?

The dunning process is a series of escalated steps to notify and request remittance from a customer.

The first step is to call or email the customer, reminding them of their past due invoice. Often, the process stops after a notice or two. Many customers simply aren’t aware they owe you or that their credit card was declined. They’re eager to take care of it.

Accounts receivable may also try to initiate smart retries on the transaction or seek consent to get updated information from the credit card company.

When the customer doesn’t respond or disputes the charge, the dunning process gradually becomes more assertive. It could involve bringing in third parties, even the legal system.

What Is Dunning Process in Germany?

The dunning process is fairly easy to execute — at least in the beginning, while you’re still on good terms with your customer.

Notify the Customer

After an unpaid invoice is past due, give the customer a friendly reminder over email or on the phone. If the missed payment is due to a credit card being declined, your accounting software system will most likely send an email notification automatically.

Remember at this stage it’s best to be friendly in tone. The customer may not know (or has forgotten) they haven’t remitted payment yet. That’s only human. If their credit card has been declined, it’s better to be empathetic at this point than to go on the attack.

At the same time, be direct and unambiguous about your notice. Emails about the situation should have clearly phrased subject lines: “Action Required: Payment Past Due” or “Account (Number) Suspended: Credit Card Declined.”
Although it’s important to be concise, give at least some context to your notice. Just saying “Payment Due Immediately” might make it look like a piece of junk email.

Send a Formal Letter

If initial contact doesn't elicit a response, send a hard-copy letter to the customer's mailing address. In Germany, this dunning notice is known as a Mahnung. It represents the point where good-natured collection attempts turn into official legal efforts.

The Mahnung should be explicitly identified as such, and needs to show this information:

· Your name and business address
· Your customer’s name and address
· Service or goods your company provided the customer
· Date and number of the original invoice
· Total amount due
· Additional late payment fees if any
· Your and your customer’s VAT IDs
· Specific payment deadline (i.e., “15 November 2021,” not “30 days from date of this notice”)
· Bank details if you require electronic transfer of funds

If the situation gets to the Mahnunglevel, extended clemency doesn’t have to be an option. If payment still hasn’t been received after the deadline on the first Mahnung, the next batch of notices should have progressively shorter deadlines.

Start Debt Collection Procedures

The final stage in the dunning process in Germany is to start judicial proceedings to enforce repayment. This step is more than just unfortunate: It’s also time-consuming, nerve-wracking, and potentially expensive.

At this point, it may well be worth it to contract a third-party debt collection agency (Inkassounternehmen) to represent your company in legal efforts to get late payments. You can also apply to your local district court to initiate the process. We strongly suggest retaining an attorney.

Legal debt collection usually represents the end of the business-client relationship, which is never a pleasant prospect — but neither is not getting paid. Weigh your options carefully before taking an aggressive act that will likely terminate the relationship.

What is the Dunning Process Timeline?

There’s no set timeline for the dunning process in Germany, but it should be realistic and reasonable. The following timeline is a good one to adopt:

Cordial Reminders

Two days before payment is due, you can start sending friendly notices to your customer. You probably want to give them a little room — one week is enough — to remit payment without further action from you.


Mahnungen

Two weeks after the missed deadline, it’s fair to send the first formal Mahnung. There’s no maximum number of notices you can send, but three of them should establish your intentions. Send them up to five weeks after the payment deadline passes.

Legal Debt Collection

If it’s been 40 days since the missed deadline, feel free to start judicial proceedings or hire a debt collection agent.

Monite Can Help

Use Monite to keep track of your past due accounts, retain legal information, and make the dunning process at least a little easier to execute.
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