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Debt collection is an age-old process that has been carried out for centuries. Dunning was the process followed for debt collection but has evolved beyond recovery of debts to maintain and protect the business-customer relationship.

Read on to know what exactly dunning is, how it works, and how automation eases the dunning process.

What is Dunning?

Dunning in simple terms refers to the process of communicating with customers to collect accounts receivables or debts owed to a business. It takes its origin from the 17th-century term ‘ dun’ which meant ‘demand of payment for debt’.

Business owners use different methods of communication to ensure the collection of overdue payments from their customers. The dunning process is elaborate, usually starting with notifications and then extending to personal visits if there is no response, to ensure accounts receivable collection. Each country has its laws that regulate the dunning process.

How Does the Dunning Process Work?

The dunning process is initiated when accounts receivable from customers are overdue for certain periods. Dunning can be difficult for both the customers and the business as reputation, goodwill, and privacy are all at stake and the relationship can be easily affected, with businesses standing to lose revenue as well as customers in the process.

Business owners usually try to handle the highly intimidating process in a lighter vein to get required payments and protect the interests of customers. The process typically commences with gentle reminders and progresses to warning letters, phone calls, and personal visits to customer locations when the debts become way overdue.

The steps usually followed in the collection process are:

  • Reaching out to customers via phone calls and informing them of due payments
  • Sending formal letters that serve as gentle reminders and gradually escalating to warning letters
  • Paying personal visits to customer locations to demand payments
  • Entrusting collection to third-party agencies
  • Threatening legal action
  • Implementing legal proceedings

The dunning process depends on several factors such as the amounts of accounts receivable due, the periods for which payments are due, the nature of the relationship with the customers, and more.

Though initially the overdue payments are followed up by the accounts receivable department, the responsibility of collecting debts from unresponsive customers may eventually be handed over to external agencies.

The dunning process usually abides by the laws in each country and may be restricted to using firm reminders or personal visits. Business owners mostly avoid harassment or extreme coercion strategies that are considered unlawful.

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What is a Dunning Letter?

A dunning letter is a notification sent to a customer in the form of a letter. It explains to the customer that a certain payment is overdue to the company.

Dunning letters are key tools used by collection teams to ensure accounts receivables are taken care of and the business gets its due revenue. They are usually the first step followed in the collection process to communicate with the customers for payments that are overdue over long periods.

There are various types of dunning letters sent to customers as reminders. These letters also can vary in degree of severity depending on the responsiveness of the customer.

Why are Dunning Letters Important?

Businesses depend on revenue and need to do everything possible to ensure that their dues are collected to sustain continuity and growth. This necessitates using dunning as an option where accounts receivables are long pending.

Business owners understand that late payments may be due to several factors include missing reminder letters, insufficient cash flow, or even transaction failures. Dunning is resorted to only when accounts receivable collection becomes crucial to ensure proper business functioning.

Besides serving as collection tools, dunning letters can aid in the timely prevention of delinquent accounts. They also help close or bring down a company’s sales outstanding to increase cash flow in the business.

Dunning letters are also important to convey to the customer that a company takes its business seriously but are also empathetic to customers. Only when the effectiveness of dunning letters is missing, will the business resort to making personal visits or using collection agencies.

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Types of Dunning Letters

To retain goodwill and in an attempt to maintain smooth relationships, business owners start with small reminders in the form of a simple dunning letter to indicate to customers that they might have overlooked a payment.

Dunning letters can differ in format, style, language, etc. depending on which stage of the overdue payment the interaction takes place and the nature of the response from the customer.

These letters start as simple reminder notifications on the assumption that the customer may have forgotten to make a payment. At this stage, the business does not want to lose its goodwill.

A dunning letter can take various forms. Many companies use a printed letter that can be sent to respective customers through regular mail, registered mail, or couriers, to inform the urgency for payment. Use of registered mail or couriers ensures confirmation of delivery as customers sign receipts to acknowledge the letter.

Businesses also resort to sending emails, fax, or SMS texts as dunning reminders. But the chances of it getting unnoticed, missed, or ignored can sometimes make it less effective than the regular paper-letter method.

With the age of digitization setting in, it is now easier to resort to automation to handle this repetitive, boring, but highly-crucial process, that is necessary to ensure the collection of accounts receivables.

Contents of a Dunning Letter

The dunning letter is a letter of intimation and hence follows certain rules in the way it is communicated. It carries standard information regarding the pending amount, the number and date of the unpaid vendor invoice, and the late payment charges or interest amounts, as applicable.

Dunning letters are usually difficult as the business owner has to maintain a certain degree of politeness, express them using the right language and meaning, make the customer understand the reason for sending the letter, and most importantly indicate the urgency of the due payment.

Different mediums such as letters, email, and fax may be used to send the dunning letters. The tone and language of the letter are important but can slightly vary, as time lapses and the dues increase. Irrespective of the medium chosen, the dunning letter aims to catch the attention of the customers to get the required payments.

Depending on a country’s laws, there will be rules on how harsh or threatening dunning letters can be. While framing dunning letters for accounts receivable collection, businesses follow certain rules such as:

  • Using the right language: Whether the letter is sent by post or email, the correct tone and language should be maintained. The use of obscure or confusing language should be avoided. The letter should convey the name of the sender, the need for the communication, the concern at hand, and the ways to resolve the issue.
  • Maintaining conciseness: Dunning letters must be short, provide relevant details, and be easy to read or understand. Using bullet points or bold fonts can make the message clear and simple. Writing pages of text can be daunting to read and can even discourage customers from clearing payments.
  • Showing empathy to customers: Using accusatory language or suggesting that the customer is trying to deceive a business by not paying his dues can turn around badly, especially if a customer has unknowingly missed a payment. The dunning letters should maintain an empathetic but professional tone that indicates that the business respects and understands its customers. This might encourage a customer to respond and clear pending payments that will benefit the business.

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Steps in the Dunning Process

The dunning process consists of a variety of steps depending on the amount and period for which the accounts receivable is overdue. To keep track of payments and enable the collection of revenue, the following steps may be followed:

1. Identify overdue accounts

The first task in the dunning process is to create an accounts receivables ageing report that can show the pending invoices, the dues in each of them, and the period of outstanding.

Most ageing reports filter delinquent accounts that have invoices due for 30 days, 30-60 days, 60-90 days, and well beyond 120 days.

2. Create a list of delinquent accounts

Once the ageing report is established, the following step involves prioritizing the delinquent accounts for follow-up. While some business owners may consider contacting customers with the highest outstanding, others may favour collections from accounts that have the most overdue payments.

The dunning letters come into play depending on the amounts and periods outstanding of various delinquent accounts.

3. Write the dunning letters

Once the accounts have been identified, then the arduous process of sending dunning letters at different outstanding periods with varying formats is carried out.

To ensure the customer does not miss the intimation, companies can also send one more copy of the letter through email. Delay in payment responses can necessitate multiple letters to a customer, each with different outstanding periods and the late charges applicable.

4. Send out the dunning letters

Once the dunning letters are ready, reviewed, and approved by the collection manager, they can be rolled out via post or couriers. Customers can also be emailed individually. Though emails have a higher chance of being ignored, they are an effective means of notification, especially for customers who might be travelling or are unavailable in their locations to receive the mail or courier.

5. Resolve or escalate to the next steps

The dunning letters act as a means of communication/ reminder and may help resolve the issue for customers who had missed making payments because they had forgotten about it.

But in many cases, the dunning letters do not work, even after repeated attempts. In such cases of unresponsive customers, businesses escalate the issue. They can either make personal visits to customer locations to inform them and try to get the payments or can turn it over to external collection agencies who can get the job done.

How Dunning has Evolved in Modern Times

For a long time, dunning strategies have been using reminder letters, warning letters, or even threats to get required accounts receivables. But, the advent of Saas (Software as a Service) has transformed the dunning processes today. Saas companies face huge challenges with billing and payments with many accounts. Transaction failure in a recurring billing system due to involuntary churn is common and happens for reasons varying from insufficient funds, net connectivity problems, or blocked/ expired credit cards.

In many cases, customers would have missed noticing the transaction failures until their bank or credit card statement brings it to their notice. This is where dunning can help. The dunning process can identify transaction failures and send alerts to resolve them. Technological advancements have enabled businesses to use automation systems that help handle the dunning process efficiently to prevent churn and in turn loss of revenue.

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What is Automated Dunning?

Automated dunning refers to using automation software that is designed specifically to tackle the accounts receivable collection process and ensure businesses do not lose out on revenue. Using an automated dunning solution can provide a protective shield for companies against involuntary churn occurring due to failed transactions.

Modern businesses rely on using dunning automation to help clients make timely payments and prevent overdue in the process. This way the business can assure its clients of the continued services and goodwill.

Automated dunning management systems can take care of the delivery of timely intimations to inform customers about upcoming dues. They can also send updates regarding failed payments which enables customers to take prompt action from their side.

How do Dunning Solutions Work?

Dunning solutions aim to resolve accounts receivable collection issues due to missed or failed payments. The dunning management software enables actions such as:

  • Sending reminders to customers regarding outstanding payments from declined credit cards
  • Use emails to alert customers about problems with payment transactions
  • Enable smart retries for failed transaction amounts
  • Request customer for permission to collect updated information on credit cards from the providers

Dunning solutions are capable of generating letters of different formats at particular intervals. Templates creation allows automatic generation of dunning letters when the payment dues exceed certain time limits. Modifications to timeframes or the content can be set by the accounts receivable departments if they deem it useful to achieve collections.

Benefits of Automated Dunning

A business can experience significant benefits when they automate crucial processes such as dunning management. Some of the advantages dunning software offers are:

Lower involuntary churn with timely reminders

Involuntary churn is unintentional on the part of the customer. It can happen due to oversight, expired credit cards, lost cards, or even network issues that result in failed payments. Dunning solutions can be a lifesaver in these cases. A timely intimation through letter or email can often prevent involuntary churn and dunning solutions do just that. They can be set to issue reminders to customers and enable them to take prompt action to make payments on time.

Prevent failed transactions with prior notifications

Dunning solutions can easily deal with failed payments. They can be designed to send notifications about credit card expiration dates which the customer can use to update or renew the cards and prevent failure of transactions. This proactive measure can save a lot of effort and time for both the customer and the business. The customer benefits from uninterrupted services and businesses can get their due revenue.

Enhance customer retention with smart retries

Allowing smart retries in payments provides customers with a positive experience. Automated dunning solutions can resolve cancelled or failed transactions in most cases by allowing smart retries. Retries can lower the churn rate for businesses, improve customer retention, and ensure loyalty from happy customers.

Improves customer experience

Dunning solutions aid in handling the repetitive tasks of keeping track of upcoming customer payments and sending timely reminders to prevent missed payments. Also, templates that use polite and positive but firm tones and language can be set to make payment recovery easier. Once everything is defined, the automated system can keep track of pending invoices and roll out reminders to inform customers of scheduled payments.

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Challenges in Dunning

The dunning process is not easy and even automation may not be able to ease it completely. Despite automation, some of the challenges businesses face are:

Customer unresponsiveness

A huge factor that contributes to delayed payments is the lack of response from customers who owe money. Losing a job, insufficient funds in the account, or untimely payments from their clients, may make it difficult for individuals to keep up with a regular payment cycle. In such cases, even using automated systems to roll out reminders for payments may be useless, as the customer simply does not have the funds to make the payment. Another reason why dunning letters fail to evoke a response may be that the customer either ignores them knowing they are just automated notifications or are offended by them.

Lack of empathy

A significant disadvantage of automation is that machines cannot show empathy to customers. They can only send monotonous letters following set templates which in no way display the emotional connection that is vital for maintaining good relationships. These solutions are incapable of showing empathy even when customer transactions fail due to genuine reasons. Customer retention cannot be achieved through dunning software. Using it may drive away the customer for good and not result in the successful payment collection for a business.

Inability to resolve issues

Relying on automation to resolve problems does not always work. When the collection teams interact with the customer, they may be able to negotiate with customers and convince them to make their payments. Or they can even make changes to payment structures or methods to make them convenient and more manageable for the customer. A dunning software cannot think on its feet like humans do or come up with solutions that can benefit the customer and the business, which makes them ineffective at times.


Dunning is a collection process that can help immensely with accounts receivables in a business. A difficult task but a necessity for many SaaS companies, automated dunning solutions have emerged as a game changer in many ways. With automation taking over, preventing delinquent accounts and failed payments makes dunning management easier. Dunning solutions, no doubt serve as a great tool to ensure revenue collection and help companies maintain good business relationships with their customers for increased growth.


What are delinquent accounts and how are they associated with the dunning process?

Delinquent accounts are customers whose payments are past due. Usually, customers or borrowers are given a 30-day window to make payments. If the payment is not done within 30 days, then an account is classified as a delinquent account. The accounts receivables team usually classifies these delinquent accounts as 30, 60, 90, or 120 days late for payments.

Usually, the first step in the dunning process is to make a list of delinquent accounts for follow-up. Dunning letters are also referred to as ‘delinquent user notifications’ and are sent by the accounts receivables team to customers to collect overdue payments.

What is the difference between a dunning letter and a statement?

A dunning letter is very different from monthly statements. A statement is a document that is usually sent at the end of the month to all customers having unpaid invoices. It includes a summary of all unpaid invoices, even if they are not due for immediate payments. A dunning letter is sent only for the payments which might have been missed and are overdue and can vary from intimation to warning letters.

While both a statement and a dunning letter serve as collection tools, a statement is more of a record of accounts for customers to check against their records and keep track of future payments.

What is meant by customer churn?

Customer churn is a term that refers to a subscription company losing its client for a variety of reasons. It is determined by a churn rate that indicates the percentage of people who have stopped using a product or service during a specified period.

There are two types of churn - voluntary and involuntary churn. Voluntary churn is when customers knowingly withdraw or end their subscription with a business. Involuntary churn happens without the customer being aware of it. Dunning is most useful in avoiding involuntary churn and can be successful in resolving such issues.

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