What is Payment Default?

Payment default arises when a debtor fails to pay on the agreed date. In most B2B contracts the payment term is explicitly stated: 14, 30, or 60 days from invoice date. Once that term is exceeded the debtor is in principle in default. Whether a formal notice of default is first required depends on the contract wording.

If the contract or general terms contain a hard payment deadline (a provision stating that the invoice must be paid by the due date on pain of default) no notice is required. Default then arises by operation of law on the day after the due date. If no hard deadline is specified, you must first send the debtor a written demand allowing a reasonable cure period, typically 14 days.

Once payment default has arisen, several consequences follow. The creditor is entitled to statutory commercial interest on the outstanding amount, calculated from the date of default. Extrajudicial collection costs may also be charged, with the maximum amount capped by law based on invoice value.

For the debtor, payment default is equally significant: suppliers may suspend services or terminate the contract upon continued payment default. The contract terms typically specify after how many overdue invoices or after what period this right becomes available.

For SMEs, tight debtor management is essential. The earlier payment default is formally established and documented, the stronger the position for any subsequent collection steps.

Outstanding invoices are one of the most common liquidity problems for SMEs. Payment default that is not addressed promptly becomes a debtor balance that erodes cash flow. Sending reminders promptly, accurately recording default dates, and consistently escalating to collection are steps that directly affect working capital.

As a buyer it is equally important to understand when you yourself are in payment default: suppliers may suspend services upon default, which creates operational risks if payments are delayed.