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Top 6 Dunning Workflow Best Practices

Dunning workflows are a series of automated emails and actions that A/R teams use to collect invoices from customers. Having the best dunning workflow for each customer is the key to increasing your cash flow. In some companies, the implementation of dunning workflows increases cash flow by a significant percentage almost instantly. With automated dunning and flexible customer segmentation, options for dunning workflows are numerous. They can be automated according to predefined rules and schedules and customized according to a range of different variables. Regardless of the details of how you set up your dunning workflow, however, you’ll know it’s successful when DSO improves. Other quantitative measures of success are improved customer relationships.

The Dunning Notice: The Foundation of any Dunning Workflow

A dunning notice, or dunning letter, is a document sent to customers at various stages in the dunning process to collect unpaid invoices. Since it functions as a legal document in the event a legal process ensues for invoice collection, it must contain specific information, such as the fees and goods and services rendered. As hand-written letters evolved to emails, dunning letters became dunning emails which could be made into templates and sent in a series – a dunning workflow, which also includes the automation, management of responses, and tracking of overdue invoices.

The Benefits of Dunning Management

Dunning management refers to the process of collecting invoices that are unpaid or overdue. Proper dunning management is important because it helps to ensure your business meets its financial obligations. It also puts a standardized process in place for dealing with bad debt, including documentation in the event that legal action needs to be pursued or the business wants to claim it in taxes. As companies scale and the number of invoices grows, however, many turn to an automated dunning process.

The benefits of dunning management include:

  • It encourages the timely payments of invoices. The goal of dunning management is to collect invoices on time and avoid overdue invoices, which affect your business cash flow and can put stress on your customer relationships. Without a strong cash flow, your business may also missout on investment opportunities it needs to expand.
  • It improves communication. Dunning management facilitates clear and constant communication with customers, so that they know exactly the amount they need to pay for each invoice and the deadline. Many customers are so busy with multiple invoices a day that they appreciate these reminders and it facilitates timely payment.
  • It builds customer relationships. Proactively dealing with customer issues and working to find solutions before they become bottlenecks or cancellation of goods or services helps build customer trust and enhances the customer experience. These customers are more likely to remain loyal rather than switch to another supplier because they believe you will work to find the right solution when issues arise.
  • It reduces costs related to delinquent accounts. Traditional collection of overdue invoices may include additional staff for collections calls or the need to use debt management services. It can also help avoid costs related to pursuing legal action.
  • It streamlines the collections process. Having the same collections process for each customer makes it easy for A/R teams to manage dunning workflows. It is also easier to then track performance and identify what parts of the process are working and what needs to be optimized.

6 Dunning Best Practices

When it comes to optimizing your A/R process, strategy is key. That’s especially true when it comes to collections. You want your A/R team to follow a set of guidelines that will ultimately lead to increased cash flow and help demonstrate that it is an essential part of revenue generation for the company.

  1. Understand the payment agreement made with the customer. This includes the payment terms, their effective date, the due dates, payment options, and the interest charges or late fees that might apply. Your dunning emails need to align with all of this information so that it doesn’t confuse the customer and cause unnecessary friction.
  2. Consider your dunning workflow timeline. It should be split into two parts: before and after the invoice is due. The general suggestion for your dunning workflow is two emails before the due date (a few days after the agreement is signed and one week before the due date), one on the due date, and three after the due date (at 14, 30 and 45 days after the due date).
  3. Segment and customize your workflows. Start with a few templates that you can customize further based on various customer profiles. Then segment different customers according to their industry, size, location and payment history and create customized messages for each segment.
  4. Track your performance. You’ll need to test and optimize emails to see what works. You’ll need to start with tracking your open rates, which indicate the interest in your subject line, and click-through rates, which indicate the level of engagement with the context of your email. Automated dunning solutions make this process easier by tracking metrics such as DSO, receivables-at-risk, average time to collect.
  5. Determine what is working and what isn’t. Success starts with setting a goal you want to achieve. Do you want your dunning process to minimize late payments or actively contribute to generating revenue? You’ll need to measure your performance to see if your dunning workflows align properly with your goal. If not, you’ll need to reevaluate both.
  6. Implement an automated dunning process. Automated dunning processes are more efficient and drastically reduce error, especially as your company scales. Fewer errors also contribute to an enhanced customer experience. Many businesses turn to an A/R management platform that not only automates the collections process but also optimizes the entire A/R lifecycle.

Get More Tips to Improve Your Dunning Emails Mastering Dunning Workflows: A Guide to Effective A/R Collections

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How Gaviti Helps You Implement Dunning Best Practices

Gaviti delivers an invoice-to-cash A/R management solution that automates and streamlines the collections process as well as optimizes the entire A/R lifecycle. Each of the different modules work together to optimize the entire A/R process, from cash application and credit monitoring to dispute management and resolution.

Its A/R management module includes:

  • Automated collections workflows. Automate reminders, internal or external escalations and and trigger them according to predefined criteria, such as the number of days before an invoice is due, payment history, credit terms, and payment history. Segment an unlimited number of workflows according to role, geographic regions, industry, customer type, etc.
  • Streamlined customer interactions. With a comprehensive system to track and record all customer transactions, including calls, emails and notes, you’ll be able to build stronger relationships with customers and resolve disputes more quickly. Having essential information about your customers at all times is essential in optimizing A/R efficiency.
  • Intelligent prioritization. Prioritize collections according to customers that pose the highest risk and value so that you can optimize collections and quickly see the effect on your cash flow. This can be especially helpful in maximizing recovery and minimizing bad debt.
  • Task management and workflow automation. Assign tasks, set due dates and track progress to ensure collections  are organized and executed in a timely manner. Automating repetitive tasks allows your business to allocate resources to higher-value tasks.
  • Customizable collections strategies. Define escalation rules, implement skip-tracing processes, or tailor collections communication templates to configure collections strategies to align with your specific needs. This is important because every business has its own set of collection requirements.
  • Real-time reporting and analytics. Track key metrics, such as DSO (Days Sales Outstanding), collections efficiency, and aging analysis. Identify trends, bottlenecks, and areas for improvement, enabling data-driven decision-making and continuous optimization of your collections strategy.

Want to learn more about how Gaviti can help you create, manage, and optimize your dunning workflows? Speak to a Specialist.

Supercharge your Dunning Processes

Our platform automates reminders as well as internal or external escalations, and other collections actions, streamlining your collections process. Segment your customers by any criteria you wish. See your DSO drop within a few months.

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