As a company does business with its clients, partners, and customers, its billing and accounting teams need to ensure payment to avoid delays in cash flow. By reminding customers to pay their bills, companies can ensure that payments are made on time and in full. This process is known as dunning.

What is Dunning?

Dunning is an automated process used by businesses to remind customers of their unpaid invoices and other debts. This process is also known as debt collection or credit control, although it can encompass activities such as calling customers in addition to sending out emails.

In accounting, the dunning process tracks and proactively manages accounts receivable to achieve greater revenue assurance. This can involve sending account reminders or making phone calls to chase up unpaid invoices.

In billing operations, dunning helps companies manage their cash flow by minimizing late payments from their customers. It involves regularly reminding customers of their unpaid invoices and ensuring that payments are made on time.

In both cases, the goal of dunning is to ensure that the customers know the amount they owe and encourage them to pay it off as soon as possible.

To do this efficiently, without error, and with minimal manual effort, most businesses automate the dunning process. Automated dunning systems send reminders to customers about their outstanding balances and prompt them to make on-time payments.


  • Collections Process: A process for reminding customers about their unpaid balances and collecting payments.
  • Credit Control: Controlling a company’s credit-based transactions with customers to ensure that all debts are paid on time.
  • Debt Collection: A process of contacting customers who have outstanding debt and negotiating payment arrangements.
  • Dunning Process: A process of reminding customers about their unpaid balances and collecting payments.
  • Payment Collections: Collecting payments from customers for outstanding payments.

The Dunning Process

The dunning process can be broken down into six main steps:

  • The accounting or billing team collects and monitors customer data, including information on current and past invoices.
  • This data is then used to generate automated reminders for customers who have unpaid balances.
  • A dunning letter is sent out to remind customers of their outstanding balance and to request that they make timely payments.
  • An accounts receivable or collections agent makes a phone call or writes an email if the customer does not respond to the dunning letter.
  • An agent will also reach out if there are any discrepancies in the customer’s payment or if the customer is unable to make a full payment. The agent will then negotiate a suitable payment arrangement with the customer.
  • If required payments are ignored for too long, the issuing organization may employ a third-party debt collection agency to recover the debt.

Once an organization collects the required payments from its customers, it can update its records and close the accounts receivable.

Benefits of an Effective Dunning Process

A successful dunning process makes it easy for organizations to close their books, improve internal cash flow, and reduce the time spent managing accounts receivable.

It also helps organizations to maintain better relations with their customers by making sure that all debts are paid on time. This can lead to increased customer satisfaction and loyalty as customers know they will be reminded when payments are due.

Improve Customer Retention

(mention at-risk customers and customer churn)

A 5% increase in customer retention can increase company revenue by 25-95%. And it is 6-7 times more expensive to acquire a new customer than to retain an existing one.

An effective dunning process can help companies to retain customers who are at risk of churning or leaving. By regularly reminding customers about their outstanding balances, companies can proactively manage customer debt and retain customers who have overdue payments.

Avoid Failed Payments

Involuntary churn—also known as involuntary customer turnover—is when a customer’s subscription or service is canceled or terminated by the provider due to payment failure.

It occurs when payment methods expire, decline, or are removed from the account without warning.

This can happen for several reasons that vary from company to company.

  • The company may not accept the customer’s payment type. This is common with credit card payments, international transfers, or payments via third-party services (e.g., PayPal).
  • The payment information may be out of date or incorrect. This can cause failed payment attempts when customers forget to update their billing details or credit card numbers change without the company being notified.
  • A payment slipped through the cracks due to financial or administrative error (i.e., revenue leakage). This is common in organizations with manual client billing processes or irregular payment cycles.

An automated dunning process can help to reduce the risk of failed payments and minimize involuntary churn.

By regularly sending reminders, companies can encourage customers to update their payment information on time and ensure that no payments slip through the cracks.

Better Customer Communication

By implementing dunning levels (i.e., criteria for how often customers are contacted when payments are due), companies can customize the frequency of their customer communication.

This helps to ensure that customers receive reminders about payment deadlines without being inundated with too many emails or messages.

It also allows companies to tailor the content and tone of different dunning levels to fit the customer’s situation (e., companies can clearly communicate their payment terms and late fees to customers.

Dunning letters also provide customers with helpful payment information, such as the due date, amount due, and contact details for the accounts receivable team.

Dunning Management Best Practices

When managing the billing process for clients and customers, organizations should stay compliant with laws and regulations, maintain customer relationships, and maximize financial gains.

To achieve these goals, organizations should consider the following best practices for effective dunning management:

Reduce Failed Transactions

Reducing involuntary churn is one of the easiest and fastest ways to improve overall churn within a company.

According to research from Recurly, the average customer churn rate is 5.57%. Of that, the average involuntary churn rate is 1.98%.

With an automated dunning system, companies can reduce their involuntary churn rate by ensuring that payment information is up to date and all payments are settled on time.

In the case of subscription businesses, organizations should also consider automating the cancellation process so that customers can easily cancel their services on time without having to contact the company directly.

Automate Dunning Emails

Dunning emails are an effective way to remind customers of their payment deadlines and provide them with relevant payment information.

When setting up email templates, remember the following:

  • Set up alerts/reminders to notify customers of overdue payments or payment failure
  • Include the payment amount and due date and contact details for customer support
  • Make sure the content and tone of the email are both clear and professional.
  • Include clear guidelines on late payment penalties or fees
  • Offer payment options that are convenient and secure for customers within the emails.
  • Set dunning levels to create cadences based on customer payment history
  • Utilize customer segmentation to customize emails for each customer

By automating dunning emails, companies can ensure timely reminders are sent to all customers and reduce the risk of unpaid invoices.

Automate the Accounts Receivable Process

An automated accounts receivable process helps to streamline the billing and collection process.

It allows companies to set up payment conditions, automate dunning emails, track payments in real-time, update customer information quickly and accurately, and generate reports for financial analysis.

About half of accounting tasks can be automated using current technology, and accounts receivable processes like collecting accrued revenue and reconciling customer payments are a great place to start.

Use the Right Messaging

When sending dunning emails or letters, make sure to craft the message in a way that will capture the customer’s attention without putting them off.

  • Avoid using accusatory language and instead focus on the value you provide to the customer by reminding them of their payment deadline.
  • Make sure to include clear instructions for customers to update their payment information or make a payment online.
  • Let customers know they can contact your accounts receivable team if they have any questions or concerns.

The same is true for manual phone calls—keep the conversation polite, friendly, and professional. Even if a customer is consistently or dramatically late on payments, try to address the issue with respect and understanding.

Improve the Customer Experience

A positive customer experience is essential for any business. When customers are treated with respect and courtesy, they are more likely to make their payments on time and continue doing business with the company.

To improve the overall experience, organizations need to create customer-centric processes like:

  • Setting up a customer payment gate that allows customers to manage their accounts, view invoices, and make payments.
  • Providing helpful payment reminders and notifications.
  • Making sure customer support staff are well-trained with the right knowledge and skills to address payment-related inquiries.
  • Creating incentives for customers that pay on time or use preferred payment methods. 

By focusing on improving the customer experience, companies can reduce their involuntary churn rate and improve the customer-company relationship.

Automated Dunning with Billing Software

Billing software is a type of business software that automates the billing and collection process. Features include:

  • Creating, sending, and tracking invoices
  • Recording payments
  • Monitoring customer accounts
  • Sending dunning emails
  • Generating revenue reports
  • Integrating with accounting systems

Billing platforms offer a payment gate for customers, and most of them accept a wide range of payment options, increasing the recovery rate of overdue payments.

Subscription-based companies should also use subscription management software to manage their multiple billing plans, pricing structures, and customer information.

People Also Ask

What does dunning in payment mean?

Dunning is the process of reminding customers to make overdue payments. It involves sending out payment reminders and notifications to customers via email, mail, or phone.

What is a dunning notice?

A dunning notice is a written reminder sent to customers informing them of their overdue payment and asking them to make it. It is usually sent after an invoice has gone unpaid for a predetermined period of time.