Dunning

Dunning

Dunning is an age-old practice that businesses across the globe use to collect outstanding payments from customers.

Before the surge of SaaS companies, companies often used aggressive and intimidating tactics to collect overdue customer remittances. However, recent innovations in SaaS technology, coupled with an inherent need to maximize customer retention, have enabled businesses to find more effective, customer-friendly ways to practice dunning. 

Discover more about the origins of dunning, its benefits, and how companies today are leveraging SaaS solutions to transform the implementation of this traditional practice and boost customer loyalty. 

What does dunning mean in financial terms?

Dunning refers to businesses reaching out to customers who owe them money to try to collect payments from them. 

While the centuries-old idea of methodically communicating with clients and reminding them to clear their debt is far from new, dunning became the go-to financial term to categorize this concept in the 17th century. As a variant of the word dun, which means to request payment from someone for a pending debt, dunning acquired notoriety over the years among companies and customers alike. 

Why?

Well, for starters, those customers who ignored a dunning letter or phone call to clear their debts often became the recipients of violent, aggressive forms of communication from companies who wanted to collect money owed to them. Those included:

  • Menacing phone calls
  • Intimidating letters
  • Death threats
  • Verbal and physical assaults

It’s important to mention that customers also view the dunning process as harassment that invades their privacy and generates anxiety for fear of the consequences of non-payment.

Therefore, companies have preferred to avoid using the word dunning, even if it is essentially a way to recover lost revenue. They often opt for other finance terminologies such as collections process or accounts receivable which mean the same thing as dunning, albeit without such a harsh connotation. 

What does a dunning system look like today?

While traditional dunning systems consisted of actions that were seen as unsophisticated, like threatening phone calls, the advent of Software as a Service (SaaS) technology has revolutionized the processes by which businesses request customers to clear outstanding debt.

Dunning is now an automated process that companies can leverage to help their customers make payments on time and complete transactions that haven’t been carried out yet. 

Using dunning software to automate collection processes enables companies to access communication platforms such as SMS, email, app push notifications, and messaging apps like Whatsapp and Telegram to alert customers of late/missed payments, inform them of their financial standing with your company, remained them to update payment details and settle unpaid debt.

While all types of companies can implement automated dunning systems, subscription-based startups and SMBs stand out for their use of SaaS products. This is because these types of Software enable them to implement accounts receivable campaigns that ensure their user base is aware of issues with payment transactions and important information about upcoming payments that need to be made in a timely fashion.

Benefits of automated dunning

Regardless of the term you use, companies have nothing to fear about carrying out dunning initiatives to collect money from debtors. 

Today, the benefits of dunning for companies far outweigh the negative reputation that customers had of it in the past:

Reduce the chances of failed customer payments

Sources have cited failed automated customer payments as one of the most expensive liabilities for companies, attributing a whopping $118.5B in lost business and added fees to companies across the globe who have failed to minimize the likelihood of unsuccessful customer payments.

Automated dunning helps enterprises nip this in the bud by enabling them to adopt a more dynamic approach to dealing with failed transactions even before it occurs. Some SaaS products notify customers to update their card details whenever it detects the card information registered in a client’s account is expected to expire soon. Doing so encourages customers to bring their billing information up to date to ensure that their payment goes through when their payment is due. 

Minimize involuntary churn

When a customer fails to make a payment, they risk disenrolling in a given subscription. When failed payments occur due to a customer being unaware of the state of their account balance or an inability to update their billing information before a charge is due, this constitutes an involuntary churn. Involuntary churns are far from ideal since they negatively impact your cash flow while hurting your customer’s experience with your brand.

Luckily, automating your dunning programs allows you to set up reminders and notifications via your preferred channel of communication with your customers and, in turn, reduce the likelihood of them unsubscribing from your service. Not only does this help reduce customer churn rate, but it also maximizes dunning revenue and positively impacts your client retention rate and your customer lifetime value. 

Streamline your customer’s data storage processes

As far as possible, companies must try to simplify the complexities of their operations. Storing different types of data across more than one platform adds an unnecessary burden to one’s workflow and ability to handle batches of data safely. Automated dunning SaaS solutions make this challenge easier since they enable you to store your billing and financial information in the same cloud space where you store general customer data. This works because the collections software forms part of a larger CRM suite or can be easily integrated into another customer database app for easy data sharing.

Automated dunning best practices

Although collecting dunning revenue is a lucrative activity that is beneficial to enterprises of all sizes, you must exercise caution when implementing it. Businesses that fail to get dunning right with their customers run the risk of damaging their brand, increasing their churn rate, and ultimately shrinking their user base.

That said, there are a series of best practices that companies can follow to increase their chances of implementing successful automated dunning programs:

  • Be strategic in your preferred method of communication: With automated dunning opening up a wealth of sophisticated digital channels to facilitate communication, companies are spoilt for choice. This makes it challenging to figure out the best medium to contact customers about their financial standing with your business. As you choose a communication channel, be sure to pick one that you believe your customer feels most comfortable receiving and taking action related to their finances. 
  • Be wary of your choice of language. Don’t come across as if you are scolding a customer for non-payment. Instead, always frame it as a gentle reminder. That way, you help project a positive brand image and reduce the risk of unnecessary customer churn. 
  • Try to be as empathetic with your target audience as possible: As a business, customers expect you to understand their challenges and always be willing to find solutions that work in the client’s favor. Sometimes repayments fail due to lost/stolen cards or insufficient funds.
  • Be friendly, professional, and compassionate with your customers in your interactions with them. Even if you think your dunning emails are gentle reminders to collect repayments, it may not always seem so; you must empathize with the customer and reword your emails. 
  • Be as direct as possible: While you want to avoid projecting a hostile, violent image to your customers through aggressive dunning campaigns, you also don’t want to be unclear in your communications with your customers.
  • Use bullet points, short paragraphs, and stylized text such as bold and italics to convey your message to your customers as clearly and concisely as possible.

Get a real-time overview of your financials with gini

Access free templates

gini currently provides free templates for businesses to monitor business performance, manage their money effectively, and make it easier to report their financials. Check them out here.

Get a grip on your finances and accelerate your growth with gini

With our AI-powered financial analysis software, you can get the necessary answers to make the tough decisions needed to drive growth.

Just connect gini with your cloud-based accounting software (Xero/Quickbooks online), and our CFO services can help you create 

customized financial reports (income statement/balance sheet) and cash flow forecasting models for you. We also offer financial planning services and growth opportunities for small businesses and startups. Schedule a demo with us today.

Get the latest gini templates and insights straight to your inbox

New templates, trending metrics content and tips from entrepreneurs to help you fundraise and grow.
Request access

By clicking submit, you consent to allow gini to store and process the personal information submitted above to provide you the content requested.