When a payment dispute becomes more complex

Many payment disputes start with an unpaid invoice. The foreign company performed, delivered goods or provided services. The German company does not pay. After reminders are sent, the debtor suddenly raises objections.

The German company may claim damages, defects, delay, missing documentation, poor performance, contractual penalties, additional costs or other alleged losses. It may state that it is entitled to set off those alleged claims against the invoice.

At that point, the dispute is no longer only about whether the invoice was issued. It becomes a question of whether the German debtor has a real and enforceable defence or is merely using alleged counterclaims to delay payment.

Typical set-off and counterclaim situations

Foreign creditors may face different types of objections when a German company refuses payment. Typical situations include:

• The German company admits the invoice but claims deductions.
• The debtor alleges defects in delivered goods or services.
• The German company claims damages caused by delay.
• The debtor relies on alleged replacement purchase costs.
• The German company claims contractual penalties or project losses.
• The debtor says it has a counterclaim and therefore does not have to pay.
• The German company uses vague allegations to postpone payment.

In these cases, the task is to separate genuine litigation risk from tactical resistance.

Set-off, offset, deductions and counterclaims

In international correspondence, different words are often used for similar ideas: set-off, offset, deduction, compensation, counterclaim or damages claim. The German debtor may use these terms loosely or without explaining the legal basis.

For a German litigation assessment, the terminology is less important than the substance. The alleged counterclaim must be identified, quantified and connected to the contract or dispute. It must also be assessed whether it can legally be used against the foreign creditor’s claim.

What should be checked first?

Before legal action is taken, the payment dispute should be reviewed from a German litigation perspective.

• What is the contractual basis of the foreign creditor’s claim?
• Has the foreign creditor performed, delivered or invoiced correctly?
• What exactly does the German company allege?
• Is the alleged counterclaim specific or only vague?
• Has the German company quantified the alleged damages?
• Are there documents supporting or contradicting the debtor’s position?
• Does the contract contain clauses on set-off, deductions or claims handling?
• Does the amount in dispute justify legal action in Germany?

These questions determine whether the best next step is a German lawyer’s letter, negotiation, settlement discussions or court proceedings.

Defects as a reason for withholding payment

A common situation is that the German company refuses payment because it alleges defects. The debtor may claim that delivered goods were defective, services were incomplete or performance did not meet the agreed standard.

Such objections may be relevant, but they must be checked carefully. The central questions are what was agreed, what was delivered, when defects were notified and whether the alleged defects actually justify withholding payment or reducing the claim.

If the dispute concerns defective goods from the perspective of the buyer, see also: Defective Goods Delivered by a German Manufacturer.

Delay damages and alleged losses

Another common defence is that the German company claims losses caused by delay. It may allege that late delivery, delayed documents, project disruption or missing parts caused additional costs.

These allegations should not be accepted at face value. It must be assessed whether there was a binding deadline, whether the foreign creditor was responsible for the delay, whether the alleged loss is documented and whether the German company contributed to the problem itself.

In many cases, the dispute becomes document-driven: purchase orders, delivery dates, correspondence, warnings, project schedules and internal explanations may decide whether the alleged counterclaim is credible.

When counterclaims are used as a delay tactic

Some German debtors use counterclaims to avoid a clear payment discussion. Instead of paying or explaining a concrete defence, they refer to internal review, open damages, alleged costs or future claims.

This can be effective against foreign creditors because it creates uncertainty. The creditor may hesitate to instruct a German lawyer or start proceedings if it is unclear whether the debtor has a real defence.

German lawyer’s letter before litigation

In payment disputes involving alleged set-off or counterclaims, a German lawyer’s letter is often a sensible first step. It should not merely demand payment again. It should address the debtor’s objections and require the German company to make its position concrete.

A proper lawyer’s letter should identify the payment claim, deal with alleged counterclaims, request substantiation and make clear that court proceedings in Germany are a realistic next step if payment is still refused.

Can a foreign creditor sue in Germany?

In many payment disputes, legal action in Germany is possible. Jurisdiction may result from the German company’s registered office, a jurisdiction clause, the place of performance, European procedural rules or other connecting factors.

Whether Germany is the right forum must be checked in the individual case. This is especially important where the contract contains choice-of-law clauses, jurisdiction clauses, Incoterms, German general terms and conditions or specific clauses on set-off and deductions.

For the broader claimant overview, see: Sue a German Company from Abroad.

Do you need to travel to Germany?

In many payment disputes, foreign creditors do not need to travel to Germany at the beginning of the matter. The case can often be prepared through contracts, invoices, delivery documents, payment records, defect notices and correspondence.

Court communication is handled through the German lawyer. Personal attendance may become relevant in individual cases, especially where witness evidence is important. But many procedural steps can be handled efficiently from abroad.

More on this practical issue: Sue in Germany Without Travelling.

Cost risk and commercial sense

A dispute involving counterclaims should be assessed carefully before proceedings are started. The main claim may be strong, but a detailed and well-documented counterclaim can affect litigation risk and settlement value.

At the same time, vague or unsupported counterclaims should not automatically prevent legal action. The decisive question is whether the documents support the foreign creditor’s claim and whether the German debtor’s objections create real risk.

More on the broader commercial assessment: Is It Worth Suing a German Company in Germany?.

How I assist foreign creditors

I assist foreign businesses and foreign clients with payment disputes against German companies, including cases where the debtor relies on alleged set-off, deductions or counterclaims.

• Assessment of the payment claim and supporting documents
• Review of alleged set-off, deductions and counterclaims
• Evaluation of jurisdiction and applicable law
• Assessment of litigation risk and settlement leverage
• Preparation of a German lawyer’s letter
• Negotiation and settlement strategy
• Representation before German courts where litigation is justified

The aim is to determine whether the dispute should be resolved by letter, negotiation, settlement or court proceedings in Germany.

When you should seek legal advice in Germany

You should consider involving a German litigation lawyer if a German company refuses payment and relies on alleged defects, damages, delay, deductions, set-off or counterclaims.

This is particularly useful if the amount is commercially relevant, the debtor’s objections are vague, the documents support your claim or the German company uses alleged counterclaims to delay payment.