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June 30, 2022

What is dunning? The term ‘dunning’ has an entirely different meaning in the SaaS world. In the olden days, dunning was closely associated with debt collection, and companies would employ aggressive, threatening tactics to coerce payment.

With the advent of SaaS, “what is dunning” has turned into something vastly different. While Wikipedia still defines dunning as “the systematic procedure of contacting your customers to collect on unpaid invoices,” it has taken a modern form.

What is Dunning in SaaS?

If you have 100 customers with a recurring payment set up, that could mean 10 failed payments each month. This could be from expired credit cards, rejected charges, or declined purchases because of a lack of available credit.

Customers often don’t realize that a transaction has failed until their monthly statements come in. That’s where dunning comes into the picture. It identifies these confusing transactions when they occur and alerts customers with accurate information promptly.

A dunning management system lets you do stuff like:

  • Set up a payment retry for when a payment fails
  • Remind customers of unpaid bills from rejected cards
  • Send your customers an email to let them know that there’s been a problem in their recent transactions
  • Ask customers for permission to receive new card information directly, so you can update their billing info without bothering them. (a.k.a. account card updater)

What is a Dunning Notice?

Dunning is a process of sending increasingly stern reminders to customers who have failed to pay their bills on time. The goal of dunning is to persuade the customer to pay the outstanding balance.

The process typically begins with a simple reminder and escalates to more forceful measures such as threatening legal action.

A dunning notice is a letter sent to customers, informing them that their account is past due.

A dunning letter is a series of increasingly insistent (and usually more angry) letters to a customer who hasn’t paid their bill.

The first couple of sentences that you send to a client should be polite and friendly, as the client may have just forgotten to pay.

As time progresses, the assumption of conducting future business with the customer begins to waver. Subsequently, we downplay the importance of retaining customer goodwill in favor of receiving payment at this time.

Regardless of the tone, all overdue invoices always state the total amount, the date it was issued, and any late fees or interest rates.

Eventually, dunning letters are ineffective, so companies stop sending them and rely on other methods of debt collection.

Types of Dunning Letters

A dunning letter is a letter sent to a customer to remind them of an outstanding balance. These letters can take many forms, including being delivered by snail mail, email, or express shipping.

However, a dunning letter can also be sent electronically as a fax, email, or text message.

While electronic delivery methods such as fax, email, or text message are convenient, there is always the potential for them to go astray. For this reason, more traditional paper-based methods may be more effective.

Many dunning letters are automatically generated by computers, with no input from humans at all.

The system uses different texts depending on whether the customer has paid or not.

It can be more effective to hire someone to write and send out dunning letters to your debtors.

The automated letter system may be changed by the accounting team from time to time to improve the collection rate. By varying the timing or content of the letters, we can increase our chances of receiving payment from customers.

This can be achieved with A/B testing, where two versions of a dunning letter are sent, and the effectiveness of each is compared. If one of the versions results in more payments, that version becomes the standard.

You need to be careful with the level of threat you include in your dunning letters, as this can vary depending on the government jurisdiction of your customer. Try to avoid making your letters excessively strident.

The Difference Between a Dunning Letter and a Statement

A dunning process is a series of notices that are sent to customers that have an outstanding balance. This is different than a monthly statement, which is sent at the end of the month to all your customer.

This statement includes any unpaid invoices that are outstanding, even ones that aren’t yet due to be paid.

The statement is a simple and accurate representation of what is owed as of the date it was generated. It is not considered to be harassment, but rather a way to keep the customer informed of their account status.

Although this may be considered a collection method, it can result in customers inquiring about unpaid bills that they do not have in their records and which they would have otherwise not paid for.

How Do Dunning Solutions Work?

There are a variety of ways dunning system templates their email communications. Most of them involve automated messages that are sent to customers before payment is due.

Dunning solutions work by sending automated emails to customers before and after their account becomes past due. These emails serve as reminders to the customer about their upcoming card expiration or outstanding balance. By keeping the customer informed, dunning solutions increase the chances of collecting on past-due accounts.

‍Ignored Automation

Dunning solutions have become a must-have technology for subscription-based business owners because there are no viable replacements.

Unfortunately, despite many businesses’ best attempts to collect payments from their customers, 15% of customers are unable to pay their bills. This is quite unfortunate for the business owner.

Perhaps the reason is that customers know you are using automated processes to bill them.

While it’s understandable to procrastinate, when a customer sees an automated email, they might feel inclined to leave it until later.

By automating your email communications, you can help ensure that your customers don’t forget about your message.

Lack of Empathy

One of the reasons that payment collection rates with customer retention software are so low is that it’s difficult to show compassion through technology.

Empathizing with your customers is a great way to make them feel heard and respected.

An emotional connection is even more important to customer loyalty than satisfaction.

One study discovered that companies who focused on emotional connections with their customers during the dunning process were more successful. This shows just how important customer service is.

In addition, the company saw a decrease in its rate of customer turnover from 37% to 33% and an overall increase in its number of active users by more than 50%.

The reason why these results boil down to a human and emotional connection is that software cannot sympathize with or empathize with your customers.

They also can’t help customers find alternative payment options or payment plans to make their subscriptions more manageable.

A dunning solution can’t empathize with a customer who’s had a legitimate reason why their card failed.

Attempting to entirely automate your customer service is a very risky move. Generally, attempts to do this are not successful.

The human touch is essential for customer retention.

Conclusion

Ever wondered what is dunning? A dunning notice is an automated process where you send reminders to customers who are late in making payments. It’s important to add a human touch to your dunning process so you can empathize with customers who are unable to make payments on time.

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