Dunning Process: How Do You Know What’s Working or Not

When run correctly, your dunning process will capture lost revenue and ensure clients pay on time. It’s a standard accounts receivable process that every company will need to contend with at some point. Unfortunately, this is one area where many companies struggle.

Although simple on paper, a dunning process can be surprisingly complex, and it’s often difficult to tell which aspects are working and which aren’t. These issues have become more prevalent over the years as companies have expanded into subscription business models with automated, recurring payments. 

Failed or delayed payments are common with automated billing, leading to involuntary churn wherein customers may be at risk for subscription cancellation without even realizing it! In these cases, it’s to both your company and your customer’s benefit to establish a system for catching and addressing missed payments.

Research suggests that the median involuntary churn rate for business and professional services is around 1.9%. This doesn’t sound like much until you consider business entities that routinely bring in tens – or hundreds – of millions in revenue each year. For these companies, every percentage point of unnecessary churn means big value left on the table. There’s no recourse here other than to examine the dunning process and see where things may come up short.

Start With Customer Information

The first point to assess is the customer’s information, including card details, expiration dates, and postal codes. These types of card failures are common when a card reaches its expiration date and needs to be updated. Verify this information with the customer as an easy first step. For some clients, this will be enough to address non-payment issues without disrupting an otherwise effective dunning process.

Set Up Pre Dunning Notifications

Incorrect customer information can be the culprit behind a few missed payments here and there, but if a failure to collect has become a regular occurrence in your business, it’s time to examine your outreach process in more depth. Start by trying to find out the reason behind a failure to pay in your customer base. You’ll likely find that many companies aren’t missing payments out of malice or economic uncertainty – they simply don’t have internal processes set up to make it a priority.

As the service provider, it’s up to you to be proactive. Set up pre dunning notifications that inform them of potential issues, whether that’s an upcoming payment or an impending credit card expiration. Something as simple as an email reminder can motivate a company to take action.

Create More Engaging Communications

So, you’ve set up pre dunning reminders and are routinely trying to reach out to customers when payments come due. But what happens when those emails get ignored?

If you find that your dunning emails aren’t getting opened, your communication style may need to be updated to better grab your customers’ attention. Aside from the obvious goal of customizing each dunning email to the customer’s situation, make sure your campaign appropriately highlights the need for action. 

Don’t just send the same boilerplate emails over and over; adjust each email’s tone to make your company’s needs clear and try to convey urgency throughout the process. As a best practice, include a call to action in every email to give customers an easy way to proceed and gain more control over your collections process.

Re-Evaluate Your Goals

Dunning processes aren’t one-size-fits-all. If you’re concerned your collections process isn’t meeting your company’s needs, you might benefit from re-assessing the goals and outcomes you want to achieve.

Some companies aim to maximize revenue from their processes, extending their dunning cycles to capture as much value as possible. Other companies want to minimize the time to collect due to limited flexibility with their operating costs. If your cash-to-collect cycle isn’t performing as you expect, re-assessing these goals can put you back on the right track.

Leverage the Ease of Automated Dunning Processes

Automated systems aren’t the competitive advantage they used to be. For many companies, leveraging automation to overcome accounts receivable challenges is simply one of many dunning process best practices. And when you see how simple collections can be with the right tool, it’s easy to understand why.

Automated systems allow you to set up simple outreach campaigns for any customer account. The tools can be tied to your customer relationship management systems to pull information and proactively send out reminders when payments come due. They also feature advanced reporting tools and analytics for tracking performance across key receivable metrics:

  • Days sales outstanding
  • Receivables-at-risk
  • Average time to collect
  • And more

At Gaviti, we provide these types of specialized solutions in an effort to help companies master their collections. If you’re struggling to identify weak points in your own dunning process, contact our team for an assessment. We’ll help you review and optimize your accounts receivables with solutions that ensure you always have the tools you need to get paid on time.

 

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