In an ideal business world, clients pay their invoices in full and on time. In the real world, organizations often must nudge clients and customers to pay invoices. This is as true for B2B (business-to-business) companies as it is for companies serving consumers.
It is a millennia-old problem that has prompted numerous methods for successful collections. One important tool still used today is the dunning letter.
What Is A Dunning Letter?
The term “dun” first became popular in the 17th century. It started as an accounting term for demanding payment. Today, businesses rely on dunning letters as part of the collections process. Because a dunning notice is a formal document that could resurface inside a courtroom, it must contain all the necessary facts.
These may include the following:
- Copy of the original invoice
- Details of fees or interest levied for overdue invoice
- Details of services rendered or goods provided
Note there are also laws governing the collections process. Failure to abide by these laws could lead to lawsuits, the need to drop the collections efforts, or fines.
How Does A Collection Dunning Letter Work?
The first letter is usually pleasant and polite. It involves a no-pressure reminder that an invoice is due.
The tone of the subsequent letters become more persistent based on how many have been sent and the manner in which the client or customer has responded. It’s important to note dunning letters are no longer considered invoices when past due.
How Do You Determine the Right Tone?
When writing dunning letters, business owners often stress about when to push greater urgency. It can be difficult to send gentle reminders when your own bills are dependent on clients paying on time. Consequently, it’s important to choose a tone based on each situation.
For example, a client who is only a day late may have forgotten to schedule the payment. Sending a kind reminder could prompt action and allow you to keep difficult communications to a minimum.
How Do Writers Format Dunning Letters?
Over the years, dunning letters have become dunning emails. This makes it much easier to create and format an effective dunning letter for each client at different stages. Best practice involves creating roughly 3-4 templates that can be customized and reused.
The most common way to categorize templates is by how long the invoice has remained unpaid. Some companies send a dunning invoice on the day payment should have been received.
Most companies send:
- The first letter when 30 days late
- The second letter when 45 days late
- The third letter when 60 days late
- The final letter around 90 days late
Usually, after 90 days, the company either initiates legal proceedings or sells the debt. When business owners sell the debt, they outsource the collections process to another entity and will receive less than the invoice amount.
Can Automation Improve the Process?
Cash is a sensitive topic in the business world, especially when it comes to not having enough of it. Unpaid invoices and the varying circumstances that lead to them frequently require human understanding to manage. Because of this, business owners often write off dunning management software as useless.
However, technology can streamline the process for business owners. It allows managers to customize and schedule dunning letters for individual clients. If the situation changes, managers can easily make the necessary adjustments. This can save a lot of time, money, and headache.
Are you ready to find out if dunning management software can help you create a more effective collections strategy?
Book your demo today.