A payment reminder is a letter a company sends to a customer if he/she has failed to pay for a service performed. As the name suggests, it is intended to remind the customer that the payment has fallen due. This is because in a payment reminder the company assumes that the customer has simply forgotten to pay the invoice. Therefore, its wording is very polite to ensure that the customer is in no way offended or upset by the payment reminder.
A payment reminder does not entail any legal consequences. It is common practice in Germany to send out three letters regarding an outstanding overdue account before further steps, such as court default proceedings or commissioning of a collection company, are taken. As a gesture of politeness, the first letter is often called a payment reminder since, at that point, the company is still assuming that the customer has not actively chosen not to pay the invoice. This reminder does not result in any legal consequences. In most cases, the second letter contains a factual request to pay the outstanding account. This second letter is called a "dunning letter". The third letter usually carries the warning "final warning" or "final reminder" (there are no fixed rules for this). Each company decides which escalation levels to include in its dunning procedure and whether a second letter is still referred to as a payment reminder - without legal consequence - or as a dunning letter as a result of which the debtor is in default (unless he/she is already in default by force of law in accordance with section 286 BGB).
There is no obligation to adopt an approach comprising three different letters. The debtor is in default at the latest as of the first dunning letter. On the one hand, this justifies further measures. On the other, the debtor is obliged to make compensation for the so-called default damage (sections 280 and 286 BGB) to the creditor, as of the time at which he/she is in default. Apart from this, a debtor can be in default even without any warning (section 286 BGB) if a payment term is specified in the invoice or established by contract. If the debtor has not paid the due account for the service provided in full by the expiry of this deadline, he/she is automatically in default. Moreover, the customer is in default, at the latest, 30 days after the claim has fallen due and receipt of an invoice or an equivalent payment request including a corresponding legal notice. As seen from a legal perspective, a dunning letter is not required in this case.
Dunning costs are part of the default damages referred to above. If the debtor is only in default as a result of the dunning letter, costs may not be charged for the first dunning letter (referred to as a dunning letter establishing default). However, the default damages also include other items, such as interest on the principal claim. All costs caused by the collection of the claim are also part of the default damages and must be refunded to the creditor by the debtor. Moreover, the costs for commissioning a collection service provider also have to be paid by the debtor in the end. The same also applies to all costs incurred during default proceedings in court. Even though the creditor has to pay the court fees initially (advance payment), these later on become part of the accessory claim to their full amount.
As seen from this perspective, it is much better to respond to the polite payment reminder by a business partner and settle the outstanding account. After all, such a payment reminder by the creditor is a gesture of goodwill.
In any case, a dunning letter includes the following information: the outstanding amount of the original invoice and the service performed. Moreover, the invoice number, the date and the recipient as well as the sender should be indicated. In many cases, the requesting company will also set a new deadline for the due payment. This polite, but firm request to pay the outstanding invoice is also part of a dunning letter. Apart from this, a dunning letter does not have to be sent via mail - sending via e-mail is also possible.