An overlooked process by many software as a service (SaaS) and subscription-based companies, dunning is a 17th-century term that describes the process that organizations take to methodically communicate with customers to collect money owed for goods or services provided. The dunning process enables you to determine why a customer didn’t send a payment, as well as serves as an opportunity to broaden the customer experience (and improve retention) by reminding the customer of the benefits of doing business with your company.
Understand the Dunning Process
To help ensure the collection of unpaid debts or failed payments, the dunning process progresses from gentle payment reminders to more assertive letters and phone calls. This process typically originates within your accounts receivable and collections departments and, depending on the amount of debt owed, customer relationship, and length of time payments remain overdue. Eventually collections may be turned over to an external collections agency.
Many SaaS and subscription-based companies use a more advantageous approach by encouraging customers to make payment(s) before their subscription terminates. When this doesn’t work, it’s important to understand that while it is acceptable to issue firm payment reminders, it’s generally unlawful to harass or threaten delinquent customers. Additionally, the form that dunning can take varies from country to country.
So what is the dunning process? It involves the following repetitious steps:
- Send emails to remind customers that a payment is due
- Make phone calls to the customer(s) to gently remind them of payment(s) due
- Send formal letter(s) requesting payment
- Visit the customer to more firmly urge payment(s)
- Hire a third-party collections agency to pressure delinquent customers
- Warn customer(s) of impending legal action
- Execute litigation
Dunning Best Practices
Let’s dig a bit deeper into the dunning process. Below are five best practices that can improve the efficiency and effectiveness of your dunning strategy.
1) Prevent/reduce payment failures
Obviously, you should do everything possible to keep accounts from going past due. While some reasons for non-payment are beyond your control, you do a lot to avoid payment delinquency. This is where pre-dunning strategies can not only enable you to recover payments but will help reduce customer churn. Check out the section on using pre-dunning management to reduce churn.
2) Monitor for past due accounts
Proactively monitoring past due accounts makes you focus on the customers that need payment prompting. The best way to track past due accounts is using a collector dashboard that provides everything needed on a single screen. From real-time status of all activities to a prioritized list of accounts with actions due, you get easy access to critical information. This should include customer history, a comprehensive view of outstanding debts, the ability to track, review, and action collection strategies, and customer history.
3) Communicate with delinquent customers
Communication consists of four formats – emails, phone conversations, formal letters, and face-to-face. Emails are the first communication in your dunning customer outreach process. This is then followed by phone calls, formal letters, and finally in-person communication when the first three methods prove unsuccessful.
It’s important for all communication methods to take an appropriate tone, be compelling, and include customization that takes into consideration the reason(s) for non-payment. The goal of the communication process is to compel the customer to take action, whether that be to update their payment information on your self-service site when credit/debit cards have expired or make the overdue payment.
This process requires that you have policies to determine the number of days/number of communications before canceling the customer’s account or sending the account to a collections agency. Be sure that the tone and content of the communication is appropriate for where the customer is delinquent and the reason(s) for non-payment. It’s helpful to create templates for all communication methods that can be easily tailored to take into consideration customer segments and relationships, and the specifics of non-payment.
4) Automate dunning emails and letters
Although customer delinquency communication should be customized, it should also be automated. You can keep customers informed of outstanding balances with automated notifications and out-of the-box collection tasks that trigger when certain thresholds are met.
These communications can be a mix of manual and automated actions, enabling you to achieve high-touch or low-touch interactions throughout the dunning period. Automation software should include the ability to automatically send payment reminders, track payment commitments and automate notifications if payment isn’t made, as well as the ability to configure strategies to activate when defined thresholds are met.
5) Use business intelligence
By tracking customer and billing metrics in a dunning report, you’ll be able to quickly see if your dunning processes are working and how they can be improved. The use of analytics enables you to analyze the performance of dunning strategies, dynamically make changes, and quickly adjust to ensure the most effective dunning strategies are being utilized.
Additionally, real-time visibility enables you to determine whether customers are leaving voluntarily or involuntarily such as what happens due to a billing mistake – enabling you to rectify the situation and reduce customer churn.
Use Pre-Dunning to Reduce Churn
Although many companies are adverse to dunning, when done right it has been proven to increase customer retention. Dunning serves as a metric to measure the ratio of customers lost over a specific period of time compared to the number of customers at the start of the same period. Let’s look at this from an involuntary churn perspective, which many times occurs when companies aren’t proactive in recovering failed payments.
Failed payments can happen due to several reasons such as insufficient funds or incorrect billing information. Credit card dunning specifically refers to declined or failed credit and debit card transactions. Implementing an effective dunning process enables companies to quickly identify failed payments and resolve the issue(s) before they lead to customer cancellations.
To reduce involuntary churn many SaaS and subscription-based companies use pre-dunning management. Pre-dunning refers to the proactive management of customer accounts before they enter the dunning process.
Since financial institutions typically send new credit and debit cards prior to the card’s expiration date, pre-dunning management should be used sparingly, and communication should take the form of providing assistance. This can be accomplished by sending an email to the customer reminding them that their card is about to expire (or has expired), and they need to update their payment information on the customer portal.
Automate Dunning and Keep Cash Flowing
Do you struggle to manage unpaid accounts and aging outstanding balances? The right collections and debt management system – one that combines billing, smart dunning, collections, and payment processing in a single solution – enables you to proactively reduce days sales outstanding (DSO), improve cash flow, build positive customer relationships, and reduce customer churn.
BillingPlatform’s cloud-based billing solution enables you to easily automate the entire quote-to-cash (QTC) process. With us you receive visibility into operational performance with customized reports and dashboards to easily understand customer behavior (monthly recurring revenue (MRR), annual recurring revenue (ARR), usage, customer lifetime value (CLV), and customer churn) analyze performance, and quickly adjust dunning strategies to meet changing requirements.
Are you ready to ditch time consuming and error-prone spreadsheets in favor of dunning automation? See our automated dunning process solution in action or reach out to our experts directly with your questions.
