Payment reminder

What it means

A payment reminder demands settlement of a receivable after its due date. Legally it is not a precondition for late payment interest - that arises by law - but it evidences that the creditor pursued the debt, and in practice it is the first step before the others.

It usually goes out at three levels: an informative reminder, a firmer demand quantifying the interest, and a pre-action letter with a deadline and notice of what follows.

A reminder does not extend the limitation period. Only bringing the claim in court or a written acknowledgment of debt by the debtor interrupts it, so a creditor who sends nothing but reminders for years may find that the debt is time-barred and the court will not award it.

How it works in practice

The most effective is the first reminder, sent automatically the moment payment falls due - at that point it is not a dispute but a nudge. The sub-ledger aged by due date is the basis, checked weekly rather than monthly.

If nothing arrives, next come a call, an instalment agreement with an acknowledgement of debt, or referral for recovery. Where collection is a systematic problem, factoring is the alternative.

For a claim against another business we add to the late payment interest in the reminder the flat-rate compensation for recovery costs that the Commercial Code grants the creditor. The debtor sees at once that paying late costs more than the principal alone.

What to watch out for

Postponing reminders to protect the relationship costs the most: after three months a receivable is markedly harder to collect and is heading for an impairment allowance. Written form and proof of delivery are prerequisites if the matter reaches court.

A reminder for an invoice that has already been paid, where the payment came with the wrong variable symbol and was never matched. A good customer takes offence and the relationship suffers. Matching before sending helps, as does a PAY by square QR code on the invoice that fills in the symbol for the customer.