What is Dunning Management?

• Dunning management is essential for business survival – It’s the process of collecting payments from customers who fail to pay on time, ensuring your business receives every penny owed through strategic communication and follow-up.
• Five core business benefits – Dunning management streamlines collections, improves customer communication, ensures timely payments, minimizes collection costs, and reduces bad debt write-offs.
• Automation enhances efficiency – Automated dunning management systems make it easier to contact delinquent customers, track payments, and maintain professional communication while reducing manual workload.
• Best practices drive success – Prompt follow-up, courteous professional communication, and systematic approaches are crucial for maintaining customer relationships while improving payment collection rates.
• Strategic implementation impacts cash flow – Proper dunning management creates healthy accounts receivable processes, attracts better credit terms, enables business growth opportunities, and prevents financial obligation defaults.

When running a business, getting paid on time for the products and services you provide is key to its survival. This is where dunning management comes in. The standard dunning meaning refers to the collection of payments from customers who failed to pay on time. It can be a tedious process, but it’s crucial for ensuring your business gets every penny owed.

Dunning Management Definition

Dunning management originated to describe how businesses communicate with customers to ensure healthy accounts receivable. While not often included as an element in the billing process, the success of that process depends heavily on proper dunning accounting.

How Dunning Management Benefits Your Business

Over the years, practices, policies, and laws have changed, but the purpose remains the same. Dunning management benefits your business in these five main ways:

• It Streamlines Collections: Businesses can have dozens of clients and vendors, making invoicing hectic and confusing. Streamlining the process with a standard dunning strategy ensures you’re adequately converting inventory into cash.
• It Improves Communication: Payments can fall through the cracks because of poor communication. When customers receive no payment reminders, or no prompts to pay when deadlines pass, they can sometimes deprioritize payment to your business. Proper dunning management eliminates this problem.
• It Ensures Timely Payments: This is the primary goal of dunning management and is essential for any business to stay afloat. To track how close you are to timely collection goals, regularly calculate the days sales outstanding and other related KPIs.
• It Minimizes Collection Costs: Timely payments minimize the time and money your company spends trying to collect on delinquent accounts. It also reduces the risk of legal fees or selling the debt for less than it’s worth to a collections agency.
• It Reduces Bad Debt: This is the money a company writes off as an expense after it has failed to collect from a customer. The less bad debt your company has, the healthier it is. Proper dunning management drastically reduces this risk.

Important Dunning Process Best Practices

Improving dunning churn depends on best practices proven to work. Following these recommendations can reduce the learning curve and improve the accounts receivable team’s performance:

• Follow-up promptly: The longer you wait to contact delinquent customers, the less likely they are to pay.
• Keep communication courteous and professional: This will help maintain customer relationships and encourage future on-time payments.
• Use automated dunning management systems: These systems make it easier to contact delinquent customers and track payments.

Why Is Dunning Management Important for Your Billing System? 

Dunning management is a crucial component of creating a healthy accounts receivable process. It focuses heavily on strategy and communications.

These are some of the many reasons you shouldn’t neglect this aspect of business management:

• An established dunning management system:
  • Puts a formal process in place to handle bad debt, so workers know exactly what to do
  • Ensures proper documentation. This is necessary for selling the debt, taking legal action, or claiming it on taxes.
• Failure to promptly collect money owed:
  • Can cause you or your business to default on financial obligations
  • Could force your company to rely more heavily on credit.
• Healthy cash flow:
  • Attracts better credit terms and more significant investment
  • Makes it easier for your business to capitalize on opportunities
  • Reduces the desperation with which the company might need to pursue infrequent late payments

What Is an Automated Dunning Management System?

Dunning in SAAS manages and tracks customer payments. It automates sending reminder emails and other communications to customers who have failed to make payments on time. This system can help you improve communication, ensure timely payments, and minimize collection costs.

There are several different dunning management and AR applications on the market. Do your research before selecting one to ensure it meets your company’s specific needs.

These are some critical questions to ask before choosing an automated billing system:

• How easy is it to scale to meet current and future needs?
• How has the product benefited customers so far?
• How much does the system cost, and why is it worth the cost?
• Is the software compatible with my existing accounting software and ERP system?
• What features does the software provide?

Why Choose Gaviti As Your Automated Billing System

Gaviti provides a comprehensive automated AR solution. Dunning management is just one aspect of the features and benefits it offers. It makes it easy for your AR team to integrate with existing systems and create templates. The software then automatically sends reminders and payment prompts to increase your chances of early and complete payments.

Customers using our product reported 30% improvements to DSO, a boost in cash flow, and a decrease in bad debt. One client saw a 60% reduction in overdue invoices and a 77% reduction in receivables at-risk.

What collections goals will Gaviti help your accounts receivable team achieve? Book your free demo to find out.

Frequently Asked Questions about Dunning Management

What is a dunning letter and when should it be used?

A dunning letter is a formal written communication sent to customers requesting payment of overdue invoices. It should be used when initial payment reminders fail, typically following a structured escalation timeline starting with gentle reminders and progressing to more urgent dunning notice formats as payment delays continue.

What should a dunning message include to be effective?

An effective dunning message should include clear payment details, specific amounts owed, due dates, and consequences of continued non-payment. It should maintain professional tone while providing multiple payment options and contact information. The message must balance firmness with courtesy to preserve customer relationships while encouraging prompt payment.

How do automated dunning systems improve customer experience?

Automated dunning systems improve customer experience by providing consistent, timely communication and multiple payment reminders through preferred channels. They eliminate human error, ensure professional messaging, and offer convenient payment options. These systems also provide transparency in the collection process, reducing confusion and frustration for customers.

Can dunning notices harm customer relationships?

Dunning notices can harm relationships if poorly executed, but professional, courteous communication typically preserves partnerships. The key is maintaining respectful tone, offering payment solutions, and showing understanding of customer circumstances. Well-crafted dunning notices actually demonstrate professionalism and can strengthen long-term business relationships through clear expectations.

What are the best practices for optimizing dunning workflows?

Best practices include implementing automated escalation sequences, personalizing messages based on customer segments, tracking response rates, and continuously testing communication timing. Successful workflows integrate with existing systems, maintain detailed documentation, offer multiple payment channels, and include clear escalation paths from gentle reminders to formal collection procedures.

See why Gaviti is ranked as the #1 Credit & Collections Software on G2: