What is Dunning?

What Is Dunning?

Dunning is the process of communicating with customers about overdue payments. The word comes from the 17th-century English verb "to dun," meaning to make persistent demands for payment. In modern business, dunning covers everything from automated reminder emails about an upcoming charge to formal letters demanding payment of a significantly overdue invoice.

The term is used most commonly in two contexts: subscription businesses dealing with failed recurring payments, and business-to-business credit control teams chasing unpaid invoices. In both cases, the goal is the same -- to recover money that is owed while maintaining a workable relationship with the customer.

How Dunning Works

Effective dunning follows a structured escalation process. It starts gently and becomes more assertive as the debt ages. A typical dunning sequence might look like this:

Pre-Dunning

Before a payment is even due, proactive communication can prevent problems. This might include reminders that a payment is coming up, notifications about expiring cards, or prompts to update payment details. Many failed payments are caused by expired cards or insufficient funds -- issues that customers would happily fix if they knew about them in advance.

Early-Stage Dunning

• Day 1 -- automated email notifying the customer that a payment has failed or an invoice is now due
• Day 3-7 -- follow-up reminder, slightly more prominent, with easy links or instructions to pay
• Day 7-14 -- another reminder, emphasising that the account is overdue and outlining any consequences

Mid-Stage Dunning

• Day 14-30 -- more direct communication, possibly switching from email to SMS or telephone
• The tone becomes firmer but remains professional
• Payment plans or alternative payment methods may be offered

Late-Stage Dunning

• Day 30+ -- formal demand letters, service suspension warnings, or referral to collections
• Phone calls from a dedicated collections team
• Final notice before account termination or legal action

Dunning for Subscription Businesses

In the subscription economy, dunning has a specific meaning: the automated process of retrying failed recurring payments and communicating with the customer about the failure. When a monthly subscription charge is declined -- because the card has expired, the bank flagged it, or the account had insufficient funds -- the dunning process kicks in.

Smart dunning systems do not just retry the same charge at the same time. They analyse patterns to determine the optimal time to retry -- different days, different times of day, different intervals. Some systems try the failed card and simultaneously send the customer a link to update their payment method. The goal is to recover the payment and retain the customer, not just to collect a debt.

The numbers are significant. Industry data suggests that 5% to 15% of recurring payments fail each month, and effective dunning can recover 50% to 70% of those failures. For a subscription business with thousands of customers, that recovery rate directly impacts monthly recurring revenue.

Why Dunning Matters for Businesses

Poor dunning processes cost businesses money in three ways: lost revenue from unrecovered payments, lost customers who churn because of payment failures that could have been resolved, and wasted staff time on inefficient manual chasing.

Conversely, a well-designed dunning process does more than just collect debts. It preserves customer relationships by handling a sensitive situation -- asking for money -- with professionalism and empathy. Nobody enjoys being told their payment has failed, but a clear, helpful, non-aggressive communication makes the difference between a customer who updates their card and a customer who cancels their account.

Dunning and Telephone Payments

The telephone is one of the most powerful dunning tools available, precisely because it is personal. An email reminder can be ignored. A letter can be put in a drawer. But a phone call demands a response, and it creates an opportunity to resolve the situation immediately.

For effective telephone dunning, agents need to be able to do more than just ask for payment. They need access to the customer's account history, the ability to offer flexible payment arrangements, and -- critically -- the ability to take payment on the spot. An agent who identifies the problem, agrees a solution, and collects payment in a single call is dramatically more effective than one who has to say "please call back to make a payment" or "I'll send you a link."

Secure telephone payment technology like DTMF masking makes this possible without compromising on security. The agent guides the customer through the payment, the customer enters their card details on their keypad, and the payment is processed -- all within the context of a supportive conversation about resolving the overdue balance.

Practical Considerations

The most important principle in dunning is to make it easy to pay. Every dunning communication -- email, SMS, letter, or phone call -- should include a clear, simple path to payment. If the customer has to search for an invoice number, find the right website, create an account, and navigate a checkout process, many will give up.

Tone matters enormously. Early-stage dunning should be helpful and understanding. Mid-stage should be clear and direct. Late-stage should be firm but professional. At no point should dunning be aggressive or threatening -- apart from being ethically wrong, it damages the customer relationship and can breach regulations.

Finally, measure everything. Track which dunning messages get the best response rates, which retry timings work best, and which channels (email, SMS, phone) are most effective at each stage. Use that data to continuously refine the process.