What are dunning levels?
Dunning levels describe how tone and consequences increase step by step in the dunning process. The first level assumes the customer simply overlooked the invoice. Each further level becomes firmer, sets clearer deadlines and finally announces what happens if payment still does not arrive.
The purpose of the levels is practical rather than legal: most overdue invoices are paid after a friendly reminder. Starting with the harshest wording annoys reliable customers. Never escalating pushes you to the bottom of unreliable customers' payment lists.
The usual dunning levels at a glance
Level 1: payment reminder
The payment reminder is a friendly note that an invoice is still open. It states the invoice number, amount, due date and bank details and usually carries no fee. Many businesses send it a few days after the payment term has expired. Under German law, even this reminder can count as a formal reminder (Mahnung) if it clearly demands payment.
Level 2: first dunning letter
The first dunning letter is factual and firm. It sets a specific payment deadline, often seven to fourteen days, and may include a dunning fee. At the latest now the text should mention default interest if you intend to claim it.
Level 3: final notice
The final notice announces the next steps: handing the claim to a collection agency, applying for a court payment order or filing a lawsuit. Only announce what you will actually do. A threatened but never executed consequence weakens every future reminder.
Afterwards: debt collection or court dunning procedure
If the final notice also has no effect, internal dunning ends. You hand the receivable to a debt collection agency or apply for a payment order (Mahnbescheid) at the competent dunning court yourself. If the debtor does not object, an enforcement order can follow on this basis.
How many dunning levels make sense?
German law does not prescribe a number – not even the often-quoted three reminders. For most small and medium-sized businesses, two or three levels have proven effective:
- Two levels (reminder and final notice) suit business customers with clear contracts and short payment terms.
- Three levels are the common standard and give customers enough opportunity to correct an oversight.
- More than three levels usually lengthen the procedure without additional payments and signal that there are no consequences.
Deadlines between dunning levels
More important than the number of levels is the total time from the due date to handover to collection or court. An example with three levels:
- Due date plus 5 to 7 days: payment reminder
- 14 days later: first dunning letter with a specific deadline
- 14 days later: final notice announcing the next steps
- 14 days later: handover to debt collection or the court dunning procedure
This adds up to roughly seven weeks. Longer intervals are possible but delay every payment. Note also: under Section 286 (3) BGB, default occurs at the latest 30 days after the due date and receipt of the invoice even without a reminder – for consumers only if the invoice points this out.
Dunning fees, default interest and the flat fee
Be careful with dunning fees. In principle, only the actual damage caused by the delay is recoverable, such as postage and materials. German courts usually accept only a few euros for this; the first reminder that triggers default is generally not recoverable. Flat fees for your own staff time are regularly problematic towards consumers.
In addition, the law provides two claims in case of default:
- Default interest under Section 288 BGB: 5 percentage points above the base rate, and 9 percentage points for transactions not involving a consumer. The base rate is adjusted every six months.
- Flat fee of EUR 40 under Section 288 (5) BGB: towards debtors who are not consumers. It is credited against any damages for legal costs.
Smarter dunning: adapting levels to the customer
A rigid scheme treats the loyal customer who overlooked one invoice the same as the customer who regularly pays only after the final notice. Smarter dunning addresses this:
- Reminder before the due date: a short message a few days before the due date prevents many reminders before they arise.
- Different texts per customer group: key accounts, private customers and new customers need a different tone.
- Treat very small amounts separately: for tiny receivables, expensive postal delivery rarely pays off; a digital reminder or a deliberate write-off is more economical.
- Analyse payment behaviour: knowing how punctually a customer has paid so far lets you choose tone and channel deliberately. The guide accounts receivable KPIs: calculating and reducing DSO shows which figures help.
How acucollect implements your dunning levels
In acucollect, the dunning software by RLOX (product page in German), you define the dunning levels once; the dunning runs then follow them automatically:
- One to three levels plus debt collection: a timeline shows the intervals in days from the due date to collection handover and the total duration.
- Texts and fees per level: you maintain subject, text and dunning fee per level, with placeholders such as invoice number, amount, days overdue or bank details. Debtor groups and individual debtors can have their own texts and fees.
- Fees only when actually sent: a dunning fee arises only once the reminder has actually been sent – per receivable and at most once per level. Towards consumers the dunning run caps the fee automatically; no fee applies at the first level.
- Smart Dunning: payment reminders before the due date and rules for small claims are included in the higher plans.
- Handover to debt collection: after the final level you hand receivables to a collection agency directly from acucollect.
How the levels work together in the recurring process is described in dunning run: process, timing and when to pause.
