Invoices and payment reminders - Preparations for successful receivables collection

Basic requirements

A proper invoicing process is of fundamental importance for accounting and for tax returns and, notably, a prerequisite for input tax deduction as well as successful receivables collection. The applicable requirements here for the invoicing process as well as the mandatory information are stipulated in Sections 14, 14a of the German VAT Act. 

Payment reminders are a key element of receivables management and requests for payment. These can be informal notices. The crucial factor is that it should be made clear that the creditor is requesting payment from the debtor. Such a request can also be made implicitly, for example, via a reminder to settle, or by sending a second or third invoice. If the creditor is entitled to several claims, then the debtor must be able to identify the receivable to which the reminder relates.

Relevance and dispensability of reminders

The significance of reminders for successful receivables management is notably that they establish that the debtor is in arrears. In the case of receivables collection, the debtor being in arrears is normally a condition for entitlement to interest on arrears and compensation for any damages due to delayed payment, such as, for example costs related to collection services, legal expenses and court fees.

In exceptional cases, the debtor can however also fall into arrears without a reminder, for example in the following cases:

• The parties mutually determine, via a respective agreement, a payment period according to the calendar.
• It is stipulated that the payment must be preceded by a specific event, such as receipt of the invoice, and an appropriate period, which is to be calculated from the date of this event, is agreed.

Automatic arrears

Section 286(3) of the German Civil Code contains a separate provision for claims for payment arising from the delivery of goods (e.g., purchase price claims) or the rendering of services. According to this, a debtor will be in arrears, at the latest, if they do not pay within 30 days after the due date and receipt of an invoice. This would apply to consumers only if the legal consequences of automatic arrears are specifically pointed out. 

The problem of evidence 

A problem that frequently gets in the way of successful receivables collection is the (non-) availability of proof. In the case of a dispute, the creditor generally has to provide proof of receipt of the invoices and payment reminders as well as of the provision of the goods or services. That is why the means of delivery should be selected so that receipt can be proven as reliably as possible. 

Every dispatch option harbours risks. In the case of e-mails, the mere sending of an e-mail is not proof of its receipt. Incontestable proof of receipt will only be provided by the so-called read receipt. If the relevant documents are sent as an attachment, then these would only be deemed to have been received when the attachment is actually opened. 

Even supposedly reliable delivery methods, such as recorded delivery (not signed-for) and recorded delivery with a return receipt, harbour risks because while the receipt is admittedly documented, however, the contents are not. To avoid these issues, a disinterested third party should check the letter and place it in the envelope themselves, ideally with a short note about the procedure. 

In addition, proof has to be provided that an order was placed and the goods or services were supplied; an invoice on its own is not sufficient. Good documentation, for example via countersigned orders and transfer documents is essential.