What is Dunning?

The process of asking customers for the amount they owe to the company is called dunning. This process indicates a situation where a customer fails to make a purchase through their bank account due to lack of funds or credit card declination. Dunning is not popular among customers and businesses, as it is threatening for the customer and difficult for the businesses, i.e., it requires payment collection from uncooperative customers. Nonetheless, it is a method of regaining lost revenue and holds great significance for SaaS-based businesses.

For example, there are 100 customers subscribed to your offerings, and not every customer is likely to have a smooth payment experience. There is a high chance of at least 5 cases of declined payments due to credit card issues, insufficiency of funds, etc. Moreover, these mishaps often go unnoticed by the customers, and here is when dunning takes over. Dunning allows figuring out failed transactions and automatically notifies customers with alerts to make payments in a timely manner.

What is Dunning Management?

Dunning management is an automated process that allows you to set up smart retries for failed payment cases, thus saving revenue and time. It allows sending reminders about any outstanding dues to customers owing to declined cards. Moreover, it helps with customer alerts via email to ensure they are aware of the failed payments. Furthermore, it allows customers to opt in for the collection of the latest credit card details to ensure a timely inflow of payments. Dunning management often works in these steps:

Initial Reminder Stage: It involves sending a friendly notice reminder after the passage of the payment due date.

Follow-up reminders: It involves sending reminders if the payment is still unpaid.

Final Notice: It is all about issuing a final notice before taking serious actions such as legal proceedings.

What is the importance of dunning management?

There is a broad range of reasons why it is crucial for businesses to practice dunning management:

Makes Payments on Time:

Having an organized method to remind customers when invoices are outstanding ensures timely payment. Consistent reminders prevent overdue invoices from falling through the cracks, which otherwise would cause fluctuating and unsteady cash inflows.

Enhances Customer Relationships:

Polite and structured reminders ensure that there is a professional relationship with customers. Rather than rude or forceful collection, a well-controlled dunning process informs the customer of the overdue status in a respectful tone, which can save and even enhance customer loyalty.

Automates Collection Processes:

Automation of the dunning process is time-saving and minimizes manual intervention. Automated systems can issue reminders at a specified frequency, monitor responses, and escalate the collection process as needed, enabling employees to dedicate their time to more strategic functions.

Improves Financial Planning:

With timely collections, companies can more accurately forecast their cash flow. When they know when payments are going to arrive, they can plan their expenses, investments, and other financial obligations more precisely.

Promotes Legal Compliance:

Dunning management ensures that every reminder and communication with customers is recorded. This record can be very important for legal reasons if debts must be pursued legally. A clear record of all communications can safeguard the business and serve as proof of attempts made to collect overdue payments.

Reduces Bad Debt:

Following up on overdue bills regularly decreases the risk of bad debt. That is, fewer bills remain unpaid, and companies are able to collect more of the funds owed to them, which decreases financial losses.

Prioritization:

Dunning systems tend to permit the prioritization of accounts in terms of the amount outstanding or the period of the overdue. This allows companies to concentrate on priority accounts.

Data Insights and Analysis:

Dunning systems can yield important data and insights on customer payment habits. Such data can be utilized to streamline credit policies, determine customer risk, and make strategic decisions about future customer relationships.

Cost management:

Ineffective or ill-planned dunning processes can make it costly to collect payments. Dunning management can help strategize and streamline payment collection, thereby reducing collection costs.

What are some key factors to be mindful of while dunning?

Dunning can be a crucial factor to adjust overdue payments and recover unreached income from varying customers. However, there are many things that you must be mindful of to ensure a smooth dunning process. They include:

Poor customer relationship:

Continuous dunning efforts can frustrate the customer of your services. This is true, especially when a customer is undergoing financial issues. Businesses must therefore consider establishing a middle ground via a well-thought-out payment plan to handle such matters.

Reputation damage:

If the dunning process is not done right or done aggressively, it can cause businesses identities to incur damage. Some examples of such include poor reviews online and bad word of mouth in a negative sense.

Cost ineffectiveness

Dunning can engage your resources and sometimes bring in costs that are higher than the overdue payment the customer is liable for.

It is recommended for businesses to give importance to these factors for a smooth dunning process that does not disturb the customer-business relationship.

What is a Dunning notice?

A dunning notice is an overdue payment reminder sent to a customer by the business. It is a notice that is intended to remind the customer of their unpaid dues or overdue charges. This notice is a part of dunning management that targets alerting the customer to pay for their dues and settle the debts. There are various purposes of dunning notices, such as

Reminder: A dunning notice is a payment reminder to know that they have an unpaid bill. It offers insights about the overdue amount, invoice number, and due date.

Request: Dunning notices are meant to request customers to settle the debt. They involve information about how and where to make the payment, such as credit/debit cards, etc.

Documentation: Dunning notices leave a paper trail of communication between the company and the customer. This can be significant in the event of disputes or litigation.

Progressive Communication: Dunning notices are frequently sent sequentially, with each successive notice increasingly assertive or urgent. This may involve polite reminders, threats of consequences, and final notice.

What is dunning management automation?

Automating dunning efforts can ease your business operations to a great extent. It streamlines effective collection and management of payments.

Efficient time and resources allocation

Manual dunning management can cost time and efforts. However, automation can reduce the role of humans in proceeding with dunning notices. In this way, employees can indulge in other strategic tasks rather than being stuck with payments collection.

Proper communication:

Regularly sent notices ensure payment progress and lack of errors in the dunning process. The consistency with which customers are notified about missed payments increases the likelihood of payments being made.

Personalized Reminders:

Automated systems can personalize reminders based on customer history and behavior. Personalized messages are more effective in grabbing the attention of the customer and facilitating timely payment.

Multi-Channel Communication:

Automation enables companies to utilize multiple communication channels, including email, SMS, and phone calls.  The multi-channel method ensures that customers are reminded through their preferred channel of communication.

Less Room for Error:

Manual dunning activities are subject to human errors like forgotten reminders or incorrect data. Automation avoids such errors, providing accuracy and reliability to the dunning process.

Better Customer Relationships:

Automated systems can be programmed to ensure a professional and polite tone for all communications. This maintains good customer relations despite handling late payments.

Scalability

With increasing business growth, manual dunning process management becomes more difficult. Automation enables businesses to scale up their dunning management processes with ease, supporting higher volumes of overdue invoices without the need for extra resources.

Integration with Financial Systems:

Automated dunning systems can be integrated with financial software and accounting systems already in place. The integration keeps all financial information up-to-date and accurate, which helps in better decision-making and financial planning.

What industries most frequently rely on robust dunning procedures?

Several industries implement dunning to ensure seamless payment inflows and revenue collection. Here are some examples:

SaaS companies: Companies rely on dunning to handle recurring billing issues such as failed payments or expiry of credit cards.

E-commerce: Online retailers utilized dunning to recover the funds from failed or abandoned transactions. This ensures reduced revenue losses and smooth cash flows.

Financial Services: Banks, credit card companies, and lenders use this approach to recover loans or credit card balances that are overdue.

Healthcare: Hospitals use dunning to manage outstanding bills and ensure maintained sensitive patient-hospital relationship.

Retail: They used dunning to address unpaid invoices from distributors and customers, ensuring operational efficiency.

What is an overdue invoice?

An overdue invoice is an unpaid bill or invoice that remains unpaid even past its due date. When a business offers services to customers, they issue an invoice for the amount owed and the due date for payment. An overdue invoice triggers varying actions, and the company ensures collecting outstanding payment. This can be done via payment reminders, phone calls, emails, or even initiating legal proceedings. There are some factors to consider before following up on an overdue invoice.

Check the payment terms: review terms on the invoice or agreement with the customer. It can help figure out the due date and grace period allowed for making that payment.

Send reminders past the due date: A friendly notice past the due date can be helpful in prompting the customer to make the payment.

Direct communication: If the friendly notice does not work, you can elevate communication assertiveness. By making direct calls or scheduling a meeting to discuss the overdue payment, you can bring the issue to the attention of the customer.

Customer History: Consider customer history, whether they have a good one. Some businesses apply lenient policies of overdue payment collection from loyal customers, such as a longer grace period or personalized communication.

Take Action: If an overdue invoice remains unaddressed, you can take legal action or cease the products and services for the customer for a limited timespan until the payment is made.

How to prevent overdue invoices?

Some strategies in which you can avoid overdue invoices as a business include:

Clear invoice: Make sure your invoice is accurate, clear, and easy to understand by the customer.

Clear terms: Advanced clarity of terms and conditions with regard to payment can be helpful. You must ensure the customer is aware of these beforehand.

Credit option: You must offer clear credit policies and assess new customers for credibility. Setting credit limits can also be helpful in this regard.

Payment options: Offering multiple payment methods such as credit card payments, bank transfers, and checks can be helpful, so if one payment fails, they can use the other option.

Follow-ups: You must send reminders on overdue payments as soon as the date passes. Quick action can help show your commitment to the customer regarding their purchase.

Utilize automation: With the use of an automated system such as accounting software, you can ensure a seamless invoicing process over delayed or overdue payments.

What are the characteristics of a dunning email?

A dunning email is an official email sent to a client requesting payment of an overdue invoice or outstanding balance. Its sole intention is to remind the client of the overdue amount and motivate them to clear the payment at the earliest. Some major characteristics of a dunning email include:

Clear Subject Line: A short subject line with the overdue amount and invoice number.

Formal Greeting: A formal greeting addressing the customer by their name.

Overdue Amount Details: A clear declaration of the overdue amount, invoice number, and due date.

Payment Instructions: Payment instructions on how to make the payment, including payment modes and deadlines.

Polite but Firm Tone: A polite tone that urges the customer to pay without being confrontational.

Call-to-Action (CTA): A prominent CTA, like a “Pay Now” button, to enable immediate payment.

Contact Information: Customer contact information, including email and phone number, to contact the customer with queries or issues.