A dunning notice (Mahnung) in everyday business is a written reminder from the creditor to the debtor that a due payment is still outstanding. It serves to remind the debtor to fulfil their obligation and, if necessary, to bring about the commencement of default in payment under Section 286 of the German Civil Code (BGB). For freelancers and small businesses, the dunning notice is a central tool in receivables management and accounting.
Legal basis and effect
Under German law, Section 286 BGB governs default on payment. A dunning notice is generally required for the debtor to fall into default, unless there is a calendar-determined payment date or a reminder is dispensable for special reasons. Default interest and compensation for damages caused by default are provided for in Section 288 BGB.
For further proceedings on unpaid claims, the judicial dunning procedure under the German Code of Civil Procedure (ZPO) is intended (e.g., payment order / Mahnbescheid, Section 688 et seq. ZPO). Also observe commercial and tax law obligations: retention requirements under the German Commercial Code (HGB) and the Fiscal Code (AO) as well as VAT issues under the Value Added Tax Act (UStG).
Practical steps in receivables management
A structured approach reduces losses and effort. Recommended stages:
- Payment reminder: Friendly notice shortly after the due date (e.g., 7–14 days).
- 1st dunning notice: Formal reminder; a dunning fee may be charged; set a deadline (e.g., 7–10 days).
- 2nd dunning notice / Final reminder: Clear indication of further steps (debt collection, judicial dunning procedure).
- Judicial dunning procedure: Apply for a payment order (Mahnbescheid), possibly obtain an enforceable title.
Practical tip: Document every dunning notice (date, content, method of dispatch). This is important for evidentiary purposes and for accounting follow-up.
Accounting treatment and examples
Dunning-related items (dunning fees, default interest) must be recorded correctly in the accounts. Two categories should be distinguished:
Default interest
Default interest is a creditor’s claim under Section 288 BGB. In bookkeeping it is usually recorded as interest income or other operating income. The VAT treatment may vary; check the classification with your tax advisor.
Dunning fees
Small flat-rate amounts for dunning expenses can be recognised as other receivables. Whether dunning fees are subject to VAT depends on their legal classification; a case-by-case review is therefore necessary.
Example posting (simplified):
| Transaction | Debit | Credit |
|---|---|---|
| Original invoice (net €1,000 / VAT 19%) | Receivables €1,190 | Sales revenue €1,000 VAT €190 |
| Dunning fee (e.g., €5.00) – accounting entry | Receivables €5.00 | Other income / Interest income €5.00 |
| Default interest (e.g., €10.00) | Receivables €10.00 | Interest income €10.00 |
Wording, deadlines and common mistakes
A dunning notice should be clear, factual and legally compliant. Important contents:
- Invoice number and date
- Amount due and payment terms
- Date of the dunning notice
- Specific deadline (e.g., payment within 7 days)
- Notice of consequences of default (default interest, dunning fees, legal action)
Avoid typical mistakes:
- Failure to document methods of dispatch (e‑mail, registered mail)
- Too long intervals between dunning stages
- Unclear or legally unsupported dunning fees
- Ignoring special consumer protection rules in B2C transactions
Practical tip: Set up standardized dunning letters and schedules in your accounting or ERP system. This saves time and increases the success rate in collecting receivables.
Further action in case of continued unwillingness to pay
If no payment is received despite reminders, consider the following steps:
- Telephone call with the customer to clarify disputes.
- Final reminder with a deadline and threat of the dunning procedure.
- Initiate the judicial dunning procedure (payment order / Mahnbescheid).
- If a title is obtained: enforce through distraint (Zwangsvollstreckung) or instruct a debt collection agency.
If you are unsure about legal or VAT-related questions concerning dunning fees and default interest, consult a tax advisor or lawyer. Careful documentation and timely dunning practices are crucial in accounting to enforce receivables and avoid tax risks.