Dunning is the process of asking your customers for the money they owe you. This might seem like a simple enough part of the accounts receivable (AR) process, however, with 87% of businesses being paid late on a regular basis, it seems just getting paid is one of the major struggles that companies face.
This guide to dunning will help you get the money you need to ensure your cash flow and empower you to grow your business through effective accounts receivable management.
What is dunning?
As mentioned, dunning is a term that refers to collecting overdue or unpaid debts from clients or customers. Dunning is most commonly used as part of a subscription-based business model and is usually fully automated.
Generally, dunning is used when a card has been declined or a payment returned because there isn’t enough money in a bank account. Since it's an automated system, dunning helps businesses recover late payments and reduce churn by giving customers another chance to pay.
The dunning process
The exact dunning process depends on the business model. As mentioned, the most common usage is by subscription services, because it allows them to retain customers by not cancelling their subscription after the first failed payment.
There are a range of different reasons why a transaction might have failed, including:
- An expired card
- Insufficient funds
- Incorrect payment data
- A lost or stolen card
- A change in banking details
Once the payment has failed, an automated dunning system has several possible responses, including:
- Send a reminder to the customer that their payment has failed and that they need to update their payment details.
- Alternate customers through their chosen contact channel, such as email, SMS, or via phone.
- Use smart retries to attempt to collect payment, using a secondary or backup payment method.
- Request that the customer provides up-to-date credit credit or debit card
In short, the dunning process is a form of systematic communication between you and your customer that helps to resolve any unpaid debts.
Why dunning is essential in accounts receivables management
The primary benefit of dunning is its ability to reduce the number of failed or overdue payments your business has to deal with. As we’ve already pointed out, there are a wide range of reasons why a payment might have failed and the best way to resolve those issues is with open communication.
An automated dunning system lets your customers know that you haven’t been able to collect their payment and offers them a range of potential options to help resolve the situation.
By providing a timely response to a failed payment, and altering the customer to the issue, dunning significantly increases the chances of your being able to collect that payment. Timely payments means better cash flow, and consistent cash flow is one of the foundations of a healthy business.
Dunning helps offset late payments
Research shows that late payments cost businesses £1.6 billion in 2024. This late payment epidemic has led to such a crisis of liquidity that around 50,000 businesses each year go into insolvency because of inadequate cash flow.
At a time when 40% of businesses in the UK alone spend four or more hours a week dealing with late payments, the ability to quickly and automatically resolve the situation is an invaluable part of effective AR management.
As with most automated AR systems, automated dunning also frees up your valuable finance staff from the busy work of chasing late payments. The less time they spend manually chasing invoices, the more time they can spend making money for your business.
Dunning benefits your customers
While collection of late payments clearly benefits businesses of all scales, automated dunning also benefits the customer.
Losing a necessary purchase or valuable subscription because of a misplaced digit, expired card, or just unfortunate fiscal timing, certainly counts as a pain point on the customer journey.
Dunning quickly updates customers that a payment has not gone through and gives them the option to provide up to date or different payment details. It also processes the payment without the customer needing to act, reducing the number of steps they need to take to solve the situation.
How to improve your dunning process
Payment processes issues, such as expired cards or insufficient funds represent one of the most common vectors of involuntary churn and revenue loss. The best practices below represent an excellent opportunity to reverse that revenue loss and reduce customer churn.
Set automated payment collection retries
Setting up an automated payment dunning system frees up your AR staff to concentrate on more complicated tasks and remove the burden of constantly juggling sending payment reminders and initiating manual retries.
So, to make the most of the benefit of automated dunning, you’ll want to prioritise a system that offers different latency periods between reminder and payment retry. Depending on the software you use, it might also offer the option to change the latency period based on the reason for payment rejection.
Since the system is largely ‘set and forget’ your finance team can focus on other tasks without neglecting to follow up on failed transactions.
Implement an automated debtor reminder system
As we’ve already mentioned, communication is key when it comes to getting the best from automated dunning.
Reaching out to your customer with a variety of helpful reminders, like alerting them if a card has expired, payment dates that are approaching, and notifying them of a failed payment can all help avoid delayed payment in the first place.
All communication should be personalization, professional and demonstrate a sensitivity to the customer relationship, regardless of the circumstances.
Streamline the card update process
One of the most important aspects of any dunning system is the ability for the customer to quickly and easily update their payment or card details if a payment fails.
Ideally, when the customer receives the automated reminder that a payment has failed, that reminder should also have a direct link to a billing details update page or a Payment portal.
The process for updating the customer details should be as simple and easy as possible, to demonstrate that you value the customers’ time, and to increase the chances of them actually doing the update.
Improve your dunning process with Chaser
In addition to its many other benefits, Chaser also offers a wide variety of features that can streamline your dunning process. Such as:
- Automated reminders can be sent using SMS, email or an automated phone message. This multi-channel approach helps you reach your customers through their chosen communications channel, removing any hint of intrusiveness from your automated dunning.
- All messages sent by Chaser are fully editable to reflect your branding and tone of voice. You can use different messages for different customers, reflecting each customer's specific relationship and payment history. Despite being fully automated, all messages will appear to be sent from your personal or company email.
- Recommended chasing times make use of AI analysis of payment behaviour to recommend optimal chasing times. This system allows you to send you automated dunning reminders at the most effective time, increasing the chances of you getting paid.
- Chaser’s core features are fully automated, freeing up time and saving you money. Instead of grinding through mind numbing payment retries or sending endless payment reminders, your skilled finance team can be looking at ways to help your company grow.
Cut down on revenue loss and limit involuntary payment churn with Chaser.
Automate dunning to improve your cash flow
Despite its innocuous name, dunning is a core foundation of effective accounts receivable and a vital part of ensuring your liquidity.
Rather than treat each failed transaction as a lost customer, automated dunning allows you to essentially offer the customer another service, giving them the chance to easily update their details and have the payment automatically retried.
Not only does this cut down on the number of failed payments overall, but it helps to cut potential pain points from the customer journey and reduces involuntary churn. With one easy, fully automated step, you’re able to demonstrate care for your customer and reinforce your positive relationship, while also bolstering your cash flow.
For more information on how Chaser’s automated features can help you improve your dunning process, reduce late payments, and increase cash flow, book a demo today or start your 14-day free trial
