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What is Dunning?

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Dunning is the process that companies follow to contact customers and remind them to pay their outstanding bills.

Dunning is a systematic method that businesses rely upon to handle problems with payments and receive the money that customers owe. This might be because customers don’t have enough money, entered the wrong billing information, or are using out-of-date credit cards. 

Dunning is both proactive and reactive. lt helps to stop payment problems before they happen and it fixes them after they happen.

The Dunning Process

There are several main steps in the dunning process:

1. First, a business notices that a payment is late. 

2. Then, they send a friendly reminder to the customer to tell them about the money they still owe. 

3. If the customer doesn’t pay up, the business keeps sending reminders at set times. The dunning process typically starts with a friendly reminder, then escalates to more stern and urgent messages if payments continue to be delayed. The ultimate aim is to collect the money owed while maintaining a good customer relationship.

4. If a customer still doesn’t pay after many reminders, the business might have to pass the issue to a debt collection agency. This is usually the last option.

Companies can assess the effectiveness of their dunning strategy by monitoring their Days Sales Outstanding (DSO). DSO measures the average number of days it takes a company to collect payment after a sale has been made. The lower the DSO, the better, as it means that the company can collect its receivables more quickly. 

By improving the dunning process, companies can reduce their DSO, which will boost their cash flow and financial health.

Dunning Versus Collections

Dunning and collections are both processes related to managing accounts receivable (AR), but they differ in their scope, intensity, and the stage of payment delay they deal with.

Dunning is the proactive, systematic communication that businesses have with their customers regarding due or overdue payments. It’s usually relatively friendly and aims to encourage repayments without harming the customer relationship.

However, collections usually refer to more aggressive actions taken when dunning efforts have not resulted in payment. This process typically involves more formal and legal measures to recover the unpaid amount. For example, a company might involve a third-party debt collection agency (DCA) or take legal action against the customer. 

Its Role in the Order-to-Cash (O2C) Process

Dunning is vital in the O2C (Order to Cash) process. It’s a key part of the ‘cash’ stage, making sure money comes in on time by reminding customers to pay their bills. This step is incredibly important because it directly affects how much cash a company has on hand, which helps keep the business running smoothly.

The Modern Approach

In today’s business world, dunning has changed from a tough, impersonal process to a more friendly, personalized one. This new dunning approach tries to help customers rather than scare them. Businesses use personalized ways to communicate, like tailored emails or text messages, to remind customers they still need to pay. These messages are written in a respectful and understanding tone, encouraging customers to pay their bills while keeping a good relationship with the business.

Monitor and manage your overdue payments from a single source of truth. Get in touch to learn how Nitrobox will help you take control over your dunning process. 

Updated on 28. November 2023

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