What is a dunning procedure?

Definition dunning procedure

In a dunning procedure, the debtor is requested to pay an invoice that is already due but not yet paid. It can happen that a company has delivered something, this can be a product or a service, and it is not paid for it afterwards. Such a dunning procedure can go through various escalation stages. The aim of the dunning procedure is that the defaulting debtor pays the outstanding invoice as quickly as possible. The commercial dunning procedure is often called "default action": it is the action taken when a debtor is in default.

The prerequisites for dunning proceedings are the following: the company has rendered a service which the debtor has not yet paid despite the due date.

Sequence of events in the dunning procedure

Commercial dunning procedure

The first step is the so-called commercial dunning procedure or default action. It begins with a reminder. This is already a clear request to the debtor to pay the due invoice. The reminder usually contains the amount due, the invoice number and the payment deadline, as well as the account into which the amount due is to be paid. There is no legally defined form for a reminder. Many consumers assume that at least 3 reminders must have been sent before things get serious – however, this is a myth. There is no legal obligation or fixed number of reminders in the dunning procedure. Companies often send out several reminders to give the customer the opportunity to pay their outstanding bill before a debt collection agency, lawyer or even a court gets involved.
If a debtor does not respond to the reminder and the debt due remains unpaid, the creditor is entitled to hand over the case to a debt collection agency or a lawyer.

Assignment of the debt collection agency - out-of-court procedure

The next stage of the dunning procedure can therefore be the commissioning of a debt collection service provider. The debt collector contacts the debtor in writing or by telephone and tries to reach a payment agreement. The aim of the collection agency is to end the dunning procedure out of court and to return the debt due to the creditor as quickly as possible. This is because creditors also depend on their income.
The costs incurred by the debt collection procedure are to be paid by the debtor as so-called default costs. It is therefore important for the debtor to reach an agreement as early as possible, to stop the dunning procedure and to prevent further escalation. To this end, it is advisable to contact the collection agency immediately after receiving the first reminder in order to clarify any open questions and to discuss a repayment plan. Burying your head in the sand or persistent silence, because you don't know how to tackle it, is always the worst strategy.

If you find yourself in such a situation, don't be afraid to contact us. Only when we talk to each other we can get things out of the way.

Initiation of legal action

A legal dunning procedure is usually the last resort to secure the creditor's claim, if a debtor does not react at all or refuses to pay the debts. Since legal proceedings are not only time-consuming but also costly, it is advantageous for both sides to avoid this step.

Costs in the dunning procedure

When do costs start to arise? How high are the costs in dunning proceedings and who has to pay them?

In commercial dunning proceedings, the creditor incurs dunning costs. Further costs arise when a debt collection agency or a lawyer is engaged, which may increase depending on the course of the proceedings and the measures to be initiated. If legal proceedings are initiated, additional court costs will be incurred. Default interest is also included in the default costs.

All costs incurred in connection with and during the debt collection procedure fall under the term "damages caused by delay". The debtor must compensate the creditor for these damages caused by delay. This is regulated by law in §§ 280, 286 German Civil Code (BGB).