Partial payment on an invoice: how to allocate it correctly and enforce the outstanding balance

What happens when the customer pays only part of the invoice?

2,500 euros arrive in your account, but the invoice is for 6,000 euros. The invoice is not settled; it is only partly discharged. The balance remains due, and default continues for the balance. A partial payment is not an instalment agreement either: the customer has not agreed anything with you, they have simply paid less.

Three questions now determine how much you are still owed: which invoice is the payment allocated to? Which part covers costs and interest, and which the principal? And what does the payment mean for limitation? The German Civil Code (BGB) answers all three clearly.

How to proceed: do not spontaneously book a partial payment against the oldest open item. First read the payment reference and any message that came with the payment.

Can I refuse a partial payment?

Yes. The BGB states expressly that the debtor is not entitled to make partial performance. So you do not have to accept a partial payment. In practice, refusing is almost always the worse option. Money you accept is in your account, the balance remains owed, and the payment shows that the customer knows about the debt.

There are two exceptions where you should look closely. First, the customer specifies that the payment should go to the principal first, contrary to the statutory order. The BGB then allows you to refuse it. Second, the customer writes that this payment settles “everything” or is made “as a settlement”. Do not accept such a statement silently.

How to proceed: accept partial payments. If the customer calls one a payment in full or a final settlement, object in writing the same day: “We are booking your payment as a partial payment. The balance remains outstanding.”

In what order is a partial payment allocated?

The BGB contains two allocation rules. One applies when several invoices are open. The other applies within a single claim to costs, interest and principal.

Several invoices open

The customer determines when paying which debt they are settling, usually via the payment reference. This determination applies. If there is none, the law prescribes a fixed order. Your accounts team may not distribute the payment at will.

Costs, interest and principal

Within one claim, a payment that does not cover everything is allocated first to costs, then to interest and finally to the principal. There is a tangible reason: late-payment interest only accrues on the principal. Under the BGB, no late-payment interest is payable on interest. Anyone who deducts a partial payment entirely from the principal reduces exactly the amount that keeps earning interest and leaves interest and costs standing without interest.

How to proceed: keep three columns for each claim: costs, interest, principal. Each payment is used up from left to right.

How do you calculate the balance including interest and costs?

Example: A software service provider in Germany has invoiced a business for 6,000 euros. The contract provides for payment by 15 May 2026. The customer does not pay and is therefore in default from 16 May. On 15 July, 2,500 euros arrive without a payment reference; no other invoices are open. The costs incurred are the flat fee of 40 euros that the BGB provides against businesses for collection costs.

The base rate was 1.27 per cent in the first half of 2026 and has been 1.52 per cent since 1 July. Between businesses, 9 percentage points are added, giving 10.27 and 10.52 per cent. Because the rate changes on 1 July, you calculate in two periods:

From 16 July, interest runs only on 3,643.60 euros. If the provider hands over the balance on 30 September, 77 days add 3,643.60 euros x 10.52% x 77/365, which is 80.86 euros. The outstanding balance is then 3,643.60 euros principal plus 80.86 euros interest. If the balance is handed over to incaseof.law, no success fee is charged on the principal; the debtor’s partial payments are allocated in the order set out in the terms and conditions, and full recovery is not guaranteed. For your own cases, the late-payment interest calculator helps when you select Germany. It calculates one period per run, so enter partial payments period by period as above.

How to proceed: for every partial payment, calculate the position up to the payment date, use up the payment in the statutory order and then start a new interest period.

Is a partial payment an acknowledgement of the whole claim?

As a rule, yes. The BGB restarts the limitation period if the debtor acknowledges the claim by a payment on account, an interest payment or in any other way. Anyone who visibly pays part of a larger debt shows that they know about the debt. The three-year limitation period then starts again from the beginning.

It is different if the customer declares with the payment that they owe nothing more. Then they are precisely not acknowledging the balance. Keep the bank statement with the payment reference and any accompanying message. How limitation periods work in general is explained in the guide Limitation periods for claims in Germany.

How to proceed: for every partial payment, put the bank statement and the customer’s message into the file of the claim, not just into the accounts.

Partial payment or instalment plan: what is the difference?

A partial payment is a one-sided act. It does not change the fact that the balance is due immediately. An instalment plan is an agreement: you deliberately postpone the due date of each instalment. Until the respective date the instalment is not due, and default does not apply for that period.

So the rule is: if the customer asks for time for the balance after a partial payment, do not agree informally. Agree on instalments only in writing, with fixed amounts and dates and the rule that the entire balance becomes due at once if an instalment is missed. The instalment agreement template provides a model.

How to proceed: respond to an unagreed partial payment with a statement of the balance and a deadline, not with an instalment offer.

How do you demand the outstanding balance correctly?

Do not issue a new invoice for the same service. A second invoice leads to double entries and queries. What you need is a statement of the outstanding balance that refers to the original invoice. It should contain:

• Number, date and amount of the original invoice and the agreed payment term.
• Every payment with date and amount.
• The allocation of each payment to costs, interest and principal.
• The remaining principal and the interest rate at which it continues to accrue interest.
• A specific payment date for the balance and your bank details.
• A note on what happens once the deadline has passed.

A short covering sentence is enough: “We have allocated your payment of 2,500 euros of 15 July in accordance with the statutory rules first to costs and interest and then to the principal. A principal of 3,643.60 euros remains, plus interest from 16 July. Please pay the balance by 14 August 2026.”

How to proceed: send the statement within a few days of the partial payment. The longer you wait, the more likely the customer is to consider the matter settled.

When should you hand the balance over to a collection agency?

If the balance remains unpaid after your deadline, it is a clear case for handover: by paying, the customer has shown that they know about the debt, and you have a transparent statement. If the customer disputes the balance with a specific objection, such as a defect, clarify that first. No reputable collection agency takes on disputed claims.

At incaseof.law, a debt collection agency licensed in Austria and registered in Germany, you hand over online in the client portal: register, enter the debtor, amount and due date, upload the invoice and supporting documents. Upload the statement of the balance and the bank statements for the partial payments as well. Due, undisputed claims with documented payment default are accepted, and there is no minimum volume. For many cases from your accounting system there is a connector or a REST interface, with status updates sent back by webhook. The case team decides on the reminder stages. Court proceedings such as a court payment order (Mahnbescheid) are only initiated after your approval; the case team clarifies the procedural route and any representation required with you case by case. There are no automatic court filings. How the court procedure works is shown in the guide to the court payment order procedure.

If the customer cannot pay the balance in one go, they apply for an instalment plan in the debtor portal, which is accepted according to fixed rules that are the same for everyone. You receive 100 per cent of the principal claim, and the defaulting debtor bears the costs of default within the limits permitted by law. In regular out-of-court collection there are no costs from incaseof.law, even if the debtor does not pay, and no success fee on your principal claim. Court fees and, in Austria, MANZ transmission fees only arise once you approve court proceedings. Collection and duration are not guaranteed. If money reaches you directly after the handover, report it immediately with date and amount.

How to proceed: keep partial payments permanently organised in your receivables management and hand over open balances via Submit a claim as soon as your deadline has passed.