Payment reminders in Switzerland: Art. 104 CO interest explained

The Challenge of Late Payments for Swiss Artisans & SMEs

Are you an artisan or running a small business in Switzerland? You know the drill: the job is done, the client has signed off, you've sent the invoice with QR-bill, but your bank account remains stubbornly empty. This can create serious cash flow issues, especially when you need to cover material costs, pay salaries, or remit VAT to the Federal Tax Administration. You're left with your money tied up while suppliers and employees are waiting.

It's likely that, particularly in a diverse business environment like Switzerland, you've faced the need to send a payment reminder. Many business owners hesitate to chase overdue invoices, fearing damage to client relationships. Yet, clear and legally compliant management of outstanding debts not only demonstrates professionalism but is crucial for your business's financial health.

The Legal Framework: When Debtors Default and Interest Kicks In

The legal basis in Switzerland for reminders and late payment interest is found in the Code of Obligations (CO). According to Art. 102 para. 1 CO, a debtor is in default primarily when, after receiving a demand from the creditor (the reminder), they fail to fulfil their obligation. This is especially relevant if no fixed payment deadline was agreed upon.

If, however, a payment deadline was clearly stated on the contract or invoice, such as 'payable within 30 days from invoice date', the debtor automatically enters default upon expiry of this term, as per Art. 102 para. 2 CO. In this scenario, a formal reminder might not be strictly necessary to trigger default. Nevertheless, in Swiss commercial practice, sending a written reminder is standard procedure: it provides irrefutable documentation of the overdue status and forms the basis for potential enforcement proceedings through the competent debt enforcement office, as stipulated by the Federal Debt Enforcement and Bankruptcy Act (DEBA).

Calculating Late Payment Interest at 5% (Art. 104 CO)

When a client is in default, the law provides a clear recourse. Art. 104 para. 1 CO states that a debtor who is late with a monetary payment must pay default interest at an annual rate of 5%. This rate is legally fixed unless otherwise agreed in your general terms and conditions (GTC) or the individual contract. Higher interest rates are permissible but must have been agreed upon in writing beforehand.

Interest is calculated daily based on the outstanding invoice amount. Let's take a practical example: a plumbing company issues an invoice for CHF 5,000.00 due on March 31st. The client only pays on May 10th. This is a delay of 40 days. The formula to calculate the interest is: (CHF 5,000.00 × 5% × 40 days) / 365 days = CHF 27.40 in late interest. It's crucial to remember the prohibition of compounding interest (Art. 105 para. 3 CO): default interest is calculated solely on the original principal, never on already accrued late interest.

What to Include in an Effective Payment Reminder

For a reminder to be clear and prompt payment, it must contain all essential information in an organised manner. Incomplete details often lead to requests for clarification and further delays.

• Unique reference to the original invoice: number, issue date, and original due date.
• Breakdown of the outstanding amount, including the applicable VAT rate (8.1%, 3.8%, or 2.6%).
• Indication of the number of days overdue and the calculated late interest at 5% according to Art. 104 CO.
• Setting a new, firm deadline (typically 5-10 days in practice).
• Inclusion of a new, updated QR-bill with the correct details.

The Phased Approach: From Gentle Nudge to Legal Action

In Swiss commercial practice, a gradual approach has proven effective. The first step is a polite reminder, sent about 5-7 days after the original due date. Since many delays are due to simple administrative oversights, late interest or reminder fees are often not charged at this stage.

If payment is still not received, after another 10 days, proceed with a formal reminder. This explicitly states that the debtor is now in default and requests interest as per Art. 104 CO. Should the debtor still not respond, send a final demand with a very short deadline, maximum 5 days. This letter must contain an unequivocal warning of legal action, including the threat of initiating debt enforcement proceedings under Art. 67 DEBA.

Reminder Fees and Damages for Delay (Art. 106 CO)

A commonly debated point concerns additional reminder fees, such as CHF 20.00 or CHF 50.00 per letter. Under Swiss law, such flat fees can only be charged if they were previously agreed upon through a contract or in validly incorporated general terms and conditions. Without such a clause, these fees are often not legally recoverable in legal proceedings.

If the actual financial loss suffered by the creditor exceeds the 5% late interest, under specific circumstances, compensation for damages due to delay can be claimed according to Art. 106 CO. However, the burden of proof rests entirely on the creditor. For SMEs, it often proves more practical to focus on clear GTC clauses and statutory interest from the outset, rather than engaging in lengthy disputes over administrative costs.

Automating Reminders and Avoiding Errors

Manually managing open receivables in spreadsheets, reconciling bank statements by hand, and calculating late interest with a calculator consumes valuable time. Furthermore, manual calculations easily lead to interest calculation errors, which can be challenged in case of a dispute.

Pratiko supports quotations and QR invoices with ordinary IBAN and a free-text message, plus reviewed payment-match suggestions following manual camt.053 or camt.054 XML upload. Consult the current pricing page rather than prices in older examples. This workflow does not generate structured QRR or SCOR references.

Related guides: camt.054 reconciliation · QR-IBAN vs regular IBAN · Swiss VAT rates · Pratiko: quotes and Swiss QR invoices

Practical considerations: reminder fees and SIX QR-bill handling

A common dilemma for Swiss SMEs is whether to charge administrative reminder fees (Mahngebühren). Swiss statutory law does not automatically grant a right to arbitrary processing fees unless they were explicitly agreed in the general terms and conditions (GTC / AGB) signed by the client prior to contracting, or if you can demonstrate concrete damages under Art. 106 CO. Applying exorbitant administrative charges without contractual grounds can provoke needless disputes. Focusing on the legal 5% interest under Art. 104 CO remains the safest and legally robust option.

Additionally, ensure your payment paperwork remains technically valid. A Swiss QR-bill code contains purely structured payment data (account details, amount, reference number, and creditor address); it does not open a website URL. When generating payment reminders with added interest, always generate a newly formatted QR-bill reflecting the exact updated total to avoid payment processing mismatches during automated banking clearance.

A complete example: due date, default and reminder

Before calculating interest, establish when default actually began. Article 102 CO distinguishes a debt being due from the debtor being in default: generally a demand after maturity is needed, unless an exception such as a validly agreed fixed deadline applies. A date printed unilaterally on an invoice does not automatically prove that contractual agreement. Keep the accepted quotation, agreed payment terms and sent reminder. If the starting date is disputed, clarify it before adding interest to the requested balance. The commercial file is therefore part of preparing a reliable reminder, not merely a record for the end of the process.

An illustrative calculation uses CHF 2'000 of outstanding principal and 30 days in default. At 5% annually, using an illustrative actual/365 convention, 2'000 × 0.05 × 30 / 365 = CHF 8.22, rounded to cents. Those 30 days have already elapsed in default; they are not a universal grace period or a compulsory deadline for every customer. Article 104 CO concerns ordinary annual default interest, not a flat fee for each letter. Particular contractual terms and statutory exceptions need to be checked against the circumstances of the actual claim.

Check recent bank credits and partial payments before sending the reminder. Where some principal has been paid, the outstanding amount and relevant calculation period must reflect that change. Do not keep charging interest on the full invoice as if no payment had arrived. Identify the invoice, open balance, interest starting date and chosen day-count convention in the message. If the customer disputes a task or provides evidence of payment, review the records before continuing demands. This prevents an administrative oversight from becoming an unnecessary disagreement with a returning customer.

Reminder fees are not owed merely because they are printed in a letter. Separate default interest, costs based on a valid agreement and additional loss that needs to be established under Article 106 CO. Three reminders can be a useful business workflow, but they are not a universal statutory prerequisite for enforcement. Keep the tone proportionate and the evidence organised. Seek professional assessment for a disputed debt or complex circumstances. The example explains an administrative check; it does not replace examination of the particular contract and the legal basis of each requested amount.