Debt Collection Agency Germany
Amicable Debt Collections Germany
1. General information
Cosmopolite Collections maintain a professional collection process, focusing on the relationships between our clients and their debtors at all times. Our team of collection specialists carry out the collection process in-house, contacting debtors both verbally and in writing whilst adhering to federal and state laws. When there is a dispute, we aim to reach an amicable solution between the creditor and the debtor.
We do this by analysing all contractual documents (e.g. signed contracts, orders, confirmations, invoices and delivery notes, as well as all standard terms previously agreed upon).
All investigations are completed with the assistance and agreement of our legal team.
1.2. Local agents
At this time, we do not have the ability to visit debtors in Germany. However, if the debtor wishes to visit our premises, we will gladly arrange a face-to-face meeting to discuss the situation.
Cosmopolite Collections always charge interest to debtors, calculated from the base rate set by the German national bank plus 9% on a daily basis (see European Directive 2011/35/CEE Article 3 in conjunction with paragraph 288, section 2 of the German Civil Code).
When creditors have to pay higher interest to their banks, we are able to ask for the higher rate. However, this rate needs to be confirmed by the banks in writing in case any legal action needs to be initiated.
From a cultural point of view, German debtors are used to paying late payment charges, although the actual amount of the interest payment is considered a matter of negotiation between debtors and collectors.
1.4. Debt collection costs Germany
In Germany, under the German Civil Code paragraph 280, sections 2 and 3 and paragraph 286, debt collection costs are chargeable to the debtor, representing the creditor’s claim for late payment. If the creditor has a special contractual agreement, this can be taken into account as long as the debtor has previously agreed to the terms.
From a cultural point of view, German debtors are used to paying debt collection costs, though often the actual amount of these costs is considered a matter of negotiation.
Cosmopolite Collections will forward all recovered debt collection costs to our client to reduce the claim, retain the cost or add them to the success fee. This will depend on the contractual agreement between the client and Cosmopolite Collections.
The general prescription period in Germany is three years, starting at the end of the year the claim became due under paragraph 195 in combination with paragraph 199, section 1 of the German Civil Code.
Transport claims prescribe within one year starting from the delivery under the Convention on the contract for the international carriage of goods by road (CMR) of Geneva.
The limitation period is suspended or recommenced under German Civil Law paragraph 203ff.:
- If negotiations are in progress between the debtor and the creditor about the claim or the circumstances founding the claim, until one or the other party refuses to continue the negotiations
- In the case of a right to refuse performance In case of force majeure Under special circumstances, the obligor acknowledges the claim towards the obligee by partial payment, the payment of interest, the provision of security or in any other way, or a judicial or official act of execution is undertaken or applied for.
1.6. Accepted and most common payment methods
The most common payment method is bank transfers. Cheque payments are possible. Cosmopolite Collections also accept bankers’ drafts, although these are very rare in Germany.
We neither offer the direct booking off from the debtor’s accounts nor accept cash payment.
1.7. Types of companies
- Einzelunternehmen (sole trader/sole proprietorship)
Unlimited liability of the owner with their business and private funds In order to pursue such debtors, we need the first name and surname of the debtor.
- GbR (Gesellschaft bürgerlichen Rechts) (Civil law partnership)
No minimum capital Unlimited liability of partners Usually non-business or small-business activities.
- OHG (offene Handelsgesellschaft) (General partnership)
No minimum capital Unlimited liability of partners.
- KG (Kommanditgesellschaft) (Limited partnership)
No minimum capital At least one partner is liable, with business and private funds Limited partners are only liable with company capital.
- PartG (Partnergesellschaft) (Professional [service] partnership)
No minimum capital Partners have to be independent professionals (e.g. lawyers, doctors, architects).
- UG (Unternehmergesellschaft) (Entrepreneurial company with limited liability)
No minimum capital, however 25% of yearly earnings must be accumulated until EUR 25,000 is reached Liability is limited to company capital.
- GmbH (Gesellschaft mit beschränkter Haftung) (company with limited liability)
A minimum capital of EUR 25,000.00 in the form of cash but also assets such as cars or company equipment Partners are only liable with company capital.
- AG (Aktiengesellschaft) (company on shares) A minimum capital of EUR 50,000 divided into shares Liability is limited to company capital.
1.8. Sources of information
In Germany, Cosmopolite Collections contact credit reporting agencies to assess the financial situation of the debtor, including real estate and other enforceable assets.
We combine this with our own phone contacts to get an accurate impression of the debtor’s financial situation and advise on the next step. It depends on the legal form of the debtor whether we are also able to request information from public registers.
All traders have to be registered at the Municipal Trade office, and obtaining information from this office triggers an administrative fee, which varies from town to town.
All companies with limited liability have to register with the trade register at a competent court, which can be accessed online. We have direct access and can obtain any additional information on shareholders, historical developments and balance sheets published there.
A debtor with an unknown address can be traced via the Registration of Address office. Private persons are legally obliged to officially deregister when moving from one town to another and to re-register in their new town. Occasionally some debtors do not follow this procedure and cannot be traced, despite this being a punishable offence. As is the case with the Municipal Trade office, the cost of information from the Registration of Address office varies from town to town.
In order to trace a non-registered debtor and/or in case of potential fraud, we may engage the services of private investigators from an experienced agency with whom we have a relationship.
2. Retention of title
Germany have very comprehensive, supplier-focused regulations on retention of title (ROT), which must be explicitly agreed to prior to delivery.
Most importantly, the debtor must acknowledge the retention of title before receiving the first invoice. Most companies include retention of title provisions in their general trading conditions.
In this case, the debtor must either sign these conditions in advance or the client has to advise the debtor explicitly that the general trading conditions apply before sending the first invoice, e.g. with a note on the order confirmation.
It is vital to get proof that the trading conditions have been agreed to; otherwise, the benefits of the more complex version of the German retention of title cannot be used for reducing the outstanding amount.
There are three different kinds of retention of title: B asic ROT The goods supplied remain the legal property of the supplier until full payment. The supplier can or must get the goods back.
Increased ROT Open account retention. In the course of on-going business relations, the supplied goods remain the legal property of the supplier until all outstanding amounts from the open account or business relations have been fully paid.
Extended ROT Assigned to the supplier in advance. In accordance with §354a of the Commercial Code, an advance assignment is effective despite a non-assignment agreement between the purchaser and any third parties.
3. Safeguarding measures
In case the debtor is not able to settle a claim in a speedy manner, Cosmopolite Collections can request that the debtor secure the debt in favour of our client.
This can be done amicably and cost-effectively by providing an acknowledgement of debt authenticated by a notary and is immediately enforceable in case the agreed payment terms are not honoured.
Corresponding notary costs have to be carried by the debtor, and the notary will send the enforceable engrossment directly to us. In exceptional cases, the cost of obtaining such a title is advanced by us, e.g. if the debtor is not capable of doing so.
Costs are then charged back to the client. Approaches like this have to be evaluated on a case-by-case basis and are dependent on the outstanding principal amount.
The debtor is also able to offer other means of security such as mortgages, assignments of debts or assets.
Contracts must be drawn up for assignments of debts or assets, while mortgages have to be registered by a notary.
4. Legal collections in Germany
4.1. General information
The modern German legal system is composed of public law, which regulates relations between citizens and the state, and civil law, which regulates the relations between two people or companies. Entering into legal proceedings is possible without a prior warning to the debtor.
However, all courts are trying to mediate between creditors and debtors, and, in order to shorten the amicable phase of the legal proceedings, they may ask for proof that all pre-court efforts did not reach a conclusion and will ask to see all prior correspondence in order to reach a fast and final judgment.
4.2. Legal system
The nature of the cases and the amount of monies owed divide court jurisdiction. This scheme is a simplified extract of the German jurisdiction, usually applicable for cases regarding outstanding money.
The plaintiff does not require representation by a registered attorney before a local court (for claims up to EUR 5,000), although professional legal representation is mandatory before any other court.
4.3. Required documents
In order to apply the legal dunning procedure, Cosmopolite Collections require copies of the contract, invoices and statements indicating payments and credit notes, which have been paid against the outstanding monies.
In the case of a regular lawsuit procedure, copies of all contractual documentation should be available, starting with the contract, orders, order confirmations, delivery notes and invoices.
Every step of the trading relationship between both parties should be provable by documentation.
In case of dispute, all notes of conversations between the creditor and the debtor should be kept and given to our lawyers. In the case of verbal negotiations, we require the visit or negotiation reports and the names of any witnesses.
4.4. Legal dunning procedure
This procedure is only applicable for monetary debts where the debtor is traceable.
The Berlin-Wedding court is responsible for non-German clients, while various competent local courts are responsible for German cases. In order to obtain an enforceable judgment by the legal dunning procedure, first the court order (‘Mahnbescheid’) and secondly the enforcement order (‘Vollstreckungsbescheid’) need to be applied one after another and served to the debtor within time frames stipulated in the German Civil Process Law.
The debtor can appeal during both stages, which would transfer the dunning procedure into a regular lawsuit procedure.
The regular lawsuit procedure is initiated either directly after the amicable collection has failed due to a dispute by the debtor or directly after the legal dunning procedure if the debtor has appealed.
A written pre-procedure is usually issued. Both the plaintiff and the defendant must exchange opinions and proofs by letter until the judge believes all relevant information needed to make a judgment has been received. In this case, a hearing is scheduled, during which both parties must be present. After the hearing, the judge sets a date to publish the final judgment, and both parties will be informed about the outcome in writing by the court.
An appeal against the judgment (the threshold is EUR 600) is possible, which will trigger a second verdict by the court of second instance (local court to district court, district court to higher regional court).
In case of third instance, the review will be restricted to a check of whether or not statutes were applied correctly. Any later amendments of facts or proof are not permissible.
4.7. Debt collection costs in Germany
Any costs incurred by the civil law procedure (court costs and lawyers’ fees) are determined by the provisions of the RVG (law for lawyer fees) and the GKG (law for court fees) and are not subject to any negotiation.
All costs are dependent on the outstanding principal amount and are calculated taking into account the amounts kept by each party.
There are different fees that can apply during a procedure, which makes it difficult to predict the total costs. In addition to this, costs of witnesses and/or experts might also arise. The costs of the legal dunning procedure are usually 20% to 40% of those of a full court procedure. Costs can be kept down if the debtor does not react to the court summons and accepts the claims.
4.8. Expected time frame
The average duration of a legal dunning process is between eight and 12 weeks, whereas a court procedure can take 12 months or longer, depending on the complexity of the case and the availability of the judge and lawyers on both sides.
4.9. Interest and costs in the legal phase
Extrajudicial interest and costs can be claimed as part of the outstanding monies during the legal proceedings. A
pproximately 60% of the German courts award this additional claim, but the outcome depends on the court and the judge. In all cases, the losing party has to bear the costs of the legal proceedings according paragraph 91ff. of the German Civil Process Law.
In the case of a legal settlement, the parties bear the costs of the corresponding proceedings in proportion to their prevailing or failing.
5.1. Enforcement in debt
The creditor can block the bank account of the debtor or block the debtor’s claims against tax offices, life insurances, the debtor’s employer, shares in a business, corporate shares or any possible claim the debtor may have against any third party.
This usually proves very effective and can save costs when enforced as part of the judgment.
Very specific information, such as bank account details, the name and address of the employer and any information about the corporate shares or shares in businesses, is required for this kind of enforcement. In all cases, the court where the garnishee is residing is responsible for the single enforcement action.
5.2. Enforcement in movable property
This is the standard procedure, where the bailiff visits the debtor to take away movable property that can be liquidated in favour of the creditor.
The bailiff cannot seize the property necessary for the debtor’s basic daily life or that enables them to maintain their business activity.
If these types of property are not available, the bailiff will demand a statutory declaration from the debtor. If the debtor refuses and does not appear before the bailiff for the appointment set up for the affidavit, the creditor needs to file for an arrest warrant before court.
The warrant will then be executed by the bailiff and supported by the police. The warrant is used to obtain the statutory declaration from the debtor and can only be obtained every three years.
5.3. Enforcement in immovable property
If the debtor owns real estate, it is possible to receive a record of the claim in the land register and to then force the attachment, the attachment and sale or, if there are tenants, the sequestration of the real estate by court order. All of these processes are more expensive than those mentioned previously, and it can be a long process to get a copy of the record. Afterwards, it can also take time to sell or sequestrate the land and the real estate.
5.4. Expected time frame
The enforcement in debt generally takes only four to eight weeks. The enforcement in movable property, however, often needs six to nine months in the western parts of Germany and nine to 12 months in the eastern parts of Germany, due to a lack of bailiffs and large backlogs.
The time frame for enforcement in real estate depends very much on the single course of the case, the court, possible banks and, of course, possible buyers.
6. Insolvency proceedings
6.1. General information
Insolvency proceedings – whether regular insolvency, insolvency plan or individual insolvency – are a kind of collective enforcement by all the creditors to one debtor. With the start of the preliminary proceedings, all individual enforcement is suspended, and only when the insolvency proceedings do not start will individual enforcement continue. The aim of the insolvency proceedings is to pay out all creditors with the same quota by liquidating the assets of the debtor company or by collecting the enforceable income of the individual who is declared bankrupt.
After the debtor or a creditor files for the insolvency of the debtor, a preliminary liquidator is appointed to check if sufficient assets are available to cover the costs of the proceedings (court costs and costs of the liquidator).
If these costs are deemed to be covered, then insolvency proceedings start and a liquidator will be appointed; usually this is the preliminary liquidator. If any other route is followed, the court will reject the declaration of bankruptcy due to insufficient assets.
The creditors can then lodge their claims and take back any goods delivered under retention of title. For goods in stock, the liquidator can choose whether to pay the original price to the creditors or to return the goods.
For the extended retention of title, the insolvency practitioner liquidates the goods or claims and pays out these creditors the retaining VAT and a commission of 9% of the revenues.
After the proceedings start, lodging claims is possible within a given deadline. All claims lodged are checked before the file hearing, usually within three months after the start of the proceedings. If the lodging is done after the deadline, the claim cannot be checked before the file hearing and a second hearing near the end of the proceedings (in general after two to four years) has to be announced. For late claim lodging, an additional cost of EUR 20 arises, and the confirmation of the debt will be delayed.
The liquidator can either accept a lodged debt or dispute it. If the claim is disputed, the creditor may only file a claim in court to prove the justification of their claim when further documentation does not convince the liquidator to condition the debt.
At the end of the proceedings, all the creditors with confirmed debts will receive a dividend, on average between 5% and 8% of the original claim. In fewer than 50% of the proceedings, a dividend higher than 2% is distributed.
6.3. Required documents
In order to lodge a claim, Cosmopolite Collections need:
- An original power of attorney
- Copies of invoices
- Copies of contracts
- Copies of orders, order confirmations and delivery notes
- Copies of general conditions of sale, should there be any
- Copies of any other correspondence that may verify the claim.
6.4. Expected time frame and outcome
The deadline to lodge claims is one to three months, depending on the complexity of the procedure, which starts from the adjunction order (‘Insolvenzeröffnungsbeschluss’).
The check on the lodged claims takes place one to three months after the deadline for the claim lodging.
The total duration of an insolvency proceeding is between four and seven years. In Germany, the case will be closed when the insolvency practitioner has accepted the claim after it has been lodged.
6.5. Limited companies
Limited companies will file for insolvency for three main reasons:
- The first reason is the inability to pay, which does not automatically mean that the buyer’s assets do not cover all the debts. Under special circumstances, it could be the case that only the actual liquidity does not cover the debts due, but in general, the company’s expected liquidity would.
- The second reason is the expected inability to pay, which means that the management already knows that within a certain time span, the company will be unable to pay the debts due.
- The third reason is accounting insolvency, which means that the buyer’s assets do not cover the debts.
6.6. Unlimited companies / individuals
For unlimited companies or individual debtors, it is not obligatory to declare bankruptcy.
Nevertheless, they can declare bankruptcy for the reason of inability to pay or expected inability to pay. Costs of the proceedings will be covered by the assets, or the liable persons may request a respite for the costs. If the insolvency proceedings are confirmed, the debtor has the right to claim the annulment of all pending debts after a period of six years.
6.7. Pool of creditors
If a bigger company goes bankrupt, the actual insolvency proceedings will often be accompanied by a second set of proceedings called a pool of creditors. In this case, the creditors join in a pool agreement usually founded by credit insurance companies or banks.
The aim of the pool is to accumulate all the claims of the creditors who delivered goods under the retention of title clause. The creditors have to prove that the retention of title was agreed upon.
They then transfer their rights to the pool arrangement and participate in the refunds from the sale of all the secured goods with a quota of their confirmed credits.
The liquidator can dispute payments by the debtor carried out within three months prior to the declaration of bankruptcy.
A longer period, up to ten years, is possible for some special forms of payment (practical experience shows an increasing number).
If the liquidator disputes these payments, the creditor has to refund the liquidator plus interest and can only lodge the corresponding debt instead.
7. Arbitration and mediation
If the creditor and the debtor agree on an alternative dispute solution, there are two options available: arbitration and mediation or conciliation. Agreeing to a private tribunal has a number of advantages compared to regular legal proceedings.
It is quicker, as the courts are less occupied, there is no appeal and the hearing and process are confirmed. However, agreeing to arbitration also means exclusion of the jurisdiction of the ordinary courts. Arbitration in Germany is based on the rules of the UNCITRAL Model Law of International Commercial Arbitration and is run by the ordinary courts, Chambers of Commerce or a professional arbitrator.
The choice belongs to both parties agreeing to arbitration. The second way of solving a dispute is by mediation or conciliation proceedings, which focus on finding the root cause of the dispute in order to find constructive agreements and solutions for both the creditor and the debtor. Mediation or conciliation is carried out by professional organisations like the Chambers of Industry and Commerce or by professional mediators.
There are now increasingly more attorneys who specialise in mediation. The new agreement is not a judgment, but a kind of contracts.