Dunning Automation - Meaning & Impact On Revenue Recovery
Nov 29, 2023
Dunning automation can help businesses save time and money by automating debt collection. Learn the meaning and impact of dunning automation on revenue recovery.
Something we don’t sign up for when we start a business but is a reality of running a business is that some customers will not pay on time. Some will not settle their invoices unless you chase them.
Chasing after customers who owe you unpaid invoices is known as dunning. If the billing process is manual, dunning can be exhausting, time-consuming, and is seldom successful.
You can streamline dunning and improve the chances of successful revenue recovery by automating the entire billing process. This article examines how automation affects the dunning function, a critical part of the billing process.
What is the meaning of the dunning process?
Dunning is the process of engaging customers to settle their unpaid invoices. It involves calling customers and sending emails to remind them that an invoice is overdue. If that communication fails, the process can escalate to legal action.
In general terms, dunning means ‘to pester or make persistent demands on someone, usually for repayment of a debt’. The dunning process is, therefore, all the steps you take to recover lost revenue. It’s a sustained campaign to get customers to pay what they owe you.
You can lose revenue to failed payments because a customer has changed their payment method or has been issued a new credit or debit card by their bank.
A customer could also delay payment because of cash flow challenges in their business. Some forget to settle their invoices, possibly because they use manual accounting systems at their company.
Whatever the reason for failed or delayed payments, they constitute lost revenue if you don’t take steps to get the customer to pay their invoices. It is beneficial, therefore, that the dunning process is systematic.
Even better, you will reduce the number of unpaid invoices if your billing process, which includes dunning, is automated:
What is dunning automation?
Dunning automation is the use of software in the tasks you carry out to get customers to settle their unpaid invoices. It replaces manual dunning processes with automatic data input and processing.
Automating the dunning process minimises human input, saves time and money, and streamlines the billing process for faster payments.
So, where in a manual billing process you would manually call defaulting customers and email them with reminders of outstanding payments, with an automated dunning process, all communications will be pre-scheduled by the system.
Most automated billing software lets you set rules and triggers for when to start the dunning email sequence. For example, you can configure it to send the first reminder three days after the payment was supposed to be made and subsequent reminders at one or two-week intervals.
How to automate the dunning process.
Dunning is a part of the billing process and is, therefore, not usually automated independently. It is one of the many parts of the billing process that is automated using billing and subscription management software.
That said, you must first configure the billing system to reflect your unique revenue recovery challenges and goals.
Configuration of the automated dunning software.
To configure the automated dunning function in your automated billing software, you will need to:
Set the rules on when debts become overdue,
Determine when to send the first late dunning notice,
Decide how many dunning levels to use, customise the layout and tone of each dunning email in your sequence,
Define the dunning terms or late payment fees and interest charges on the outstanding payment and when to levy them,
The last action to take if the customer can’t be persuaded to repay their debt.
Create the dunning wizard and refine it as needed.
The dunning level is essential as it sets the messaging and the urgency each subsequent dunning email must convey. Each dunning level will have its own dunning email and trigger a specific action. That action signifies an escalation of the payment collection process.
The dunning levels for a dunning email sequence may trigger the following messaging tones and actions:
Friendly reminder,
Warning letter,
Strong-worded warning with late payment fee included as part of terms,
Notice of intent to take legal action.
Automation allows you to choose the tone for every dunning email you send. A firmer tone reflects a higher dunning level.
The reasoning behind dunning levels is that most customers only need a friendly reminder that a payment is now overdue. At that stage, the assumption is that the customer still wants to maintain the relationship.
However, if repayment is not forthcoming, it is fair to assume that the customer intends to abscond from paying, which should elicit a strong warning.
And if they still don’t respond with payment, the assumption is that the customer is prepared to end the business relationship. At this point, you have to make a decision on whether to force repayment through legal means, which comes with reputational damage or to write off the debt.
Automatic payment reminders.
Most billing software will have a dunning wizard that automates the creation and sending of dunning letters to customers with overdue payments.
The wizard monitors customer payment behaviour and organises it in the database so you can easily pull reports on which customers owe you and what percentage those debts are of your total expected revenue.
Automating the dunning process also entails pre-writing the dunning emails you will send as part of the collection process and setting events that will trigger each one.
For example, if a customer responds to the first email with payment, the system will stop the email sequence. And because the tone of that first email would have been friendly, you will most likely retain that customer.
What are the benefits of an automated dunning process?
When you think of automating the dunning process, the best way to picture the advantages it unlocks is to imagine it as debt collection. Debt collection is such a complex and tricky task many businesses choose to outsource.
So when you automate the dunning process, you not only can avoid outsourcing this key part of your financial management processes but will also reduce the number of unpaid invoices.
You can advise customers to update their payment information if it’s due to expire and send timely reminders to those who may have genuinely forgotten to pay you. The best part is that the billing software will do this work for you.
1. Helps to prevent involuntary churn.
Some subscription management software will even monitor the expiry dates for all the debit and credit cards on file and automatically send reminders to customers whose cards are about to expire.
Often, customers are unaware that their cards are due to expire. If they expire, the charges on that card will fail, which constitutes involuntary churn since the customer did not consciously cancel their subscription.
2. Maximises collection assurance.
Automating the dunning process is highly beneficial for subscription businesses. It enhances revenue collection assurance by minimising failed payments. The software tells you in advance which customer debit or credit cards are due to expire so they can add new ones in time for the upcoming payment.
While there is no way of knowing that a customer’s bank account is overdrawn, failed customer charges do not count as actual debts as the payments are made before the service or product is supplied.
You could argue that manually managing the dunning process for a subscription business is logistically impossible. Especially as you will save so much time, money, and manhours by automating it.
3. Enhances the customer experience.
While involuntary churn means loss of revenue and possibly a customer for you, for the customer, it means losing the supply of a service or product they have grown to rely on for their convenience, entertainment, and even sustenance.
So the customer will appreciate you sending them notices of failed payments so they don’t lose their subscriptions. It's even better if you can warn them that their subscription may not renew because their credit card will expire shortly. So, automating the dunning process significantly enhances the customer experience.
Enhance revenue collection, reduce failed payments, and boost cash flow with dunning automation.
Automating the dunning process is good for the business and the customers. It helps you improve cash flow by quickly collecting unpaid debts. For subscription businesses, it can even help you prevent payment failure.
An automated dunning process streamlines debt collection by automatically sending dunning letters, methodically escalating the tone and urgency of the messaging to boost the chances of repayment.
If you are considering implementing dunning automation, choose a billing automation software solution that meets your business’s unique needs.
You also need to customise the software to reflect the revenue collection challenges your business faces and train your employees on how to use the dunning automation system.
Are you in the market for a billing system that automates your entire billing process, including dunning?
Consider Intasend’s automated billing and subscription management software, designed for the unique needs of Kenya’s growing base of subscription and automation-ready businesses. Request a demo or sign up here to get started.