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Your customer hasn’t paid an invoice? With a reminder that is known as a dunning letter, you encourage the debtor to pay faster. In this article, we focus explicitly on dunning in the B2B market.
What is a dunning letter?
If one or more invoices for a customer remains unpaid, you can send a dunning letter. But what exactly is the meaning of a dunning letter?
The terms dunning letter, reminder and payment reminder are often used interchangeably to mean the same thing. However, the word dunning has a stronger tone than polite reminders and is often used in practice if the term of payment of the invoice has been exceeded. A payment reminder, for example, can be sent proactively even when the due date of the invoice has not yet been reached.
With a dunning letter, you try to encourage the customer to pay, but voluntarily. You let the customer know that the invoice was not paid within the statutory payment period and that you expect it to be paid.
Sending a dunning letter to every overdue debtor is, by the way, one of the core tasks within the debtor management or debtor policy.
In this article:
- we look at when it is best to send a dunning letter
- we consider how to do this and if there are any rules
- we consider how to avoid common mistakes
When is it best to send a dunning letter?
First dunning letter
A first dunning letter can only be sent when the deadline for the payment of an invoice has expired. Once that date has passed, a dunning letter may be sent. After all, the debtor is in default.
After a first dunning letter, the debtor must be given time to make payment.
Second (or third) dunning letter
In a second or (optionally) third reminder, a less neutral and friendly tone can be communicated.
After the debtor has failed to respond to a first request, you can already announce at this stage that interest and dunning costs will follow, or charge them right away. Make sure these costs are described in your general terms and conditions or payment terms.
Mention in the communication that the next step is a collection agency, bailiff or lawyer.
If previous reminders have not been acted upon and an amicable procedure is not possible, there is no other option than to declare the debtor in default. In this phase, all attention is focused on the recovery of the outstanding claim.
The formal notice is essential for legal action. The e-mail or letter is often sent by registered post.
Rules for dunning
In the case of stricter reminders, it is best to mention that in the event of non-payment by the customer, an external collection agency will be called in.
Each country may have specific rules on dunning. In the Netherlands, for example, you are not obliged to send a business customer a payment reminder or demand for payment; you can immediately proceed to issue a notice of default if the payment term is exceeded.
Please also note the following:
- Before sending a dunning letter, you should investigate why the customer has not paid. After you have thoroughly investigated the cause of the non-payment, and if it is not within your company (e.g. a mistake in sending the invoice), you can start issuing dunning notices.
- Repeat all the details necessary for payment: the invoice number; the services rendered; the invoice amount; the payment term.
- Let it be known that in the event of non-payment, additional (legal) costs and interest will be charged on top of the outstanding amount.
- In addition, you should mention previous payment reminders or dunning notices.
- Summarise all outstanding invoices in a handy overview that does not omit any relevant details.
- Make sure you get an acknowledgement of receipt. In this way you will avoid later problems regarding proof or other issues. A registered letter or e-mail allows you to avoid such problems.
Then give the customer a few more days to comply with the payment, but do not wait for weeks. By bringing the above points to their attention once more, the customer may still proceed to pay.
Avoid the following mistakes when writing a dunning letter
- Do not say that it is a first reminder, or that a second one will follow. The urgency to pay will diminish, and the customer is likely to delay payment further.
- Be very clear when stating a payment term and any costs.
- Do not incur additional costs or hire a collection agency immediately after the first dunning letter. In all events, you should try to keep the customer happy. This is not only better for the customer relationship, but also increases the likelihood that you will get paid. Don’t forget that there are other payment options you could offer, such as payment plans.
- Do not put off sending dunning letters. The longer it is delayed, the less chance there is of securing the payment.