Dunning: best practices for happy clients and healthy companies
Dunning is the process of repeatedly communicating with customers to make sure that accounts receivables are collected. It usually refers to making insistent demands for payments towards those who have fallen behind on paying their bills. Dunning is a process with several phases and a separate approach for each one of those phases.
Invoices past due date: what to do?
Your invoice hasn’t been paid yet, even though the payment term expired. If this happens often, your company’s cash flow will surely suffer. You must therefore start the process of dunning, in one or more of many different possibilities:
- Regular letter via email
- Regular letter via mail
- Registered letter via email
- Registered letter via mail
- Text message
- Automated voice message
- Phone call
Which way to choose the best? That depends on several factors. A first reminder is often an automated process, because everyone occasionally forgets something. A simple text message, email or letter by post will do.
Know that there is no need for drastic initiatives at first. Pay attention to customer experience when invoices remain unpaid. It’s not unthinkable that your customer simply forgot to pay the invoice or has a good reason why they haven’t paid this one time. Therefore, best practice when dunning is to make your first invoice payment reminder rather friendly.
Only in the second stage you opt for a registered letter or email, a telephone call or an automatic voice message – or a combination of several of those.
It is important that you adjust the method you choose to fit your customer. Doesn’t your customer have an e-mail address? Then you will have to choose a letter. Does your customer not read his emails or letters? Then you can be more successful with a text message or a phone call.
Make your dunning letter personal
Dunning will be more successful with a personalized approach. Show understanding in your first payment reminder, in which a little bit of informality might even be a good idea.
Follow-up payment reminders will of course each time be a bit firmer and more direct, but never forget the human aspect. Have dunning letters signed by hand by the CEO of your company, for example. Dunning letters that look like they roll out of a printer and feel like they were sent without any human interaction, will be less effective. Make the customer realize he or she is not (only) dealing with a company, but with people too.
Final notice letter for unpaid invoices
Each notice letter during a dunning process is a different one and must therefore have a different tone of voice. There are several crucial elements for your final notice letter.
The tone of voice must be the most firm and direct of all your letters, make it sound the most urgent of all letters. Best practice for a final notice letter is to also explicitly mention that it is the last one. It should also indicate the costs that so far have added up to the initial debt and it should say costs will increase even more drastically if this final notice letter isn’t handled as it should be.
Credit controllers are just people
Like all employees, credit controllers are just people. They sometimes make mistakes, or set priorities based on the largest invoice amount, for example. This results in risking small customers to be overlooked. If that happens a lot, you will eventually lose a significant amount of money.
It is therefore essential that you make automation an integral part of the dunning process. Thanks to the combination of Robotic Process Automation (RPA) and artificial intelligence (AI), your computer can automatically calculate which customers need to be contacted first. Your computer can even indicate when or how to contact the customers for the most efficient result!
Automation enables the credit controller to set priorities in a better-informed way, while at the same time relieving repetitive tasks, leaving more time for the actual follow-up of customers and other core tasks.
The consequences of the winning duo human-automation are immediately visible. Want to know more about the importance of RPA & AI in a dunning process? Read all about it in this blog about automation in credit management.
The debt collecting agency, your last resort
When a debt remains unpaid despite several recovery letters, companies might consider turning to a debt collecting agency or a bailiff. Depending a country’s legislation, the roles of debt collecting agencies and bailiffs differ.
In general, debt collecting agencies use letters and phone calls to convince your customer to pay their invoices past due. This indicates the dunning process has entered a new, more severe state. Sometimes this is enough to convince a client to finally take action.
However, if they can’t reach the customer, or if the customer still refuses to pay, several options are available:
- The debt collecting agency can use computer software or private investigators to access the contact information of the customer.
- In case of refusal, they can research the customer’s assets (such as bank accounts) to verify if the customer is able to pay his overdue invoices.
- A debt collector can also report the customer to credit bureaus, which can do serious damage to a customer’s credit score.
- If the debt collector is a lawyer, he or she is also able to file lawsuits against the customer who refuses to pay.
A bailiff, in contrary, is someone with the authority to take assets you own, such as electrical items, jewelry or a vehicle, in order to settle the outstanding invoices. But he or she can only enter your home and repossess items if you allow them in. Before it comes to this, however, the bailiff will usually also first just try to get in touch. As with the debt collecting agency, this indicates the state of severity, which might convince the client to finally take action.