What Does Dunning Mean in Finance?

Dunning is the process of sending reminders to customers who have failed to pay their invoices. This usually involves sending a series of increasingly forceful emails, starting with a gentle reminder and ending with a strongly worded demand for payment. Sometimes, businesses will also include phone calls or even personal visits in their dunning process.

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The goal of dunning is to get customers to pay what they owe, but it can also be used as a way to collect data about which customers are having difficulty making payments. This information can then be used to make decisions about credit terms, pricing, and other factors that can impact a business's bottom line.

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How is Dunning Done?

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Dunning is the process of sending out reminders to customers who have outstanding payments. This can be done manually or through automated means. When using automation, dunning software will send out reminders on behalf of the business according to a schedule set up by the business. The reminder will include information on the outstanding balance and may also include details on late fees or interest charges that may accumulate if payment is not received by a certain date.

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If payment is still not received, the dunning process may escalate to include additional reminders or even phone calls to the customer in an attempt to collect payment. Some businesses also have policies in place to send accounts to collections if payment is not received after a certain number of attempts.

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The goal of dunning is to collect payment that is owed while minimizing the amount of time and effort required on behalf of the business. Automated systems can help to streamline this process and make it more efficient.

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Does Dunning help Companies?

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It is often used as a last resort to collect a payment, but does it actually help companies? Yes, dunning assists companies in a few different ways:

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• Dunning assists in the recovery of failed payments.  It contributes to the solution by spotting unsuccessful transactions and establishing communication with the consumer in order to recover funds.
• Dunning improves the process for dealing with late payments, saves resources, and increases the efficiency of the firm. It assists in customizing emails before sending them to customers, as well as reducing the time spent reading and creating emails for each client whose card has been declined.
• Dunning helps to  reduce the risk of fraud. This is because it allows companies to keep track of who owes them money and when the payments are due. This information can be used to flag any suspicious activity and prevent any fraudulent activity from taking place.

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What Should be Included in a Dunning Letter?

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When dunning a customer, you should include the following information in your letter:

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• The amount owed
• The date the payment is due
• Any late fees that have accrued
• The total amount owed, including late fees
• The date of the last payment made
• Instructions on how to make a payment

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It is important to be clear and concise in your dunning letter so that the customer understands exactly what they owe and how to make a payment. Late fees can often be waived if the customer contacts you to make a payment arrangement, so be sure to include that information as well. Using the right tone and phrasing is also important when writing a dunning letter or email. Furthermore, it is crucial not to use ambiguous or obscure terminology. It is important that you tell them who you are, why you are contacting them, what the issue is, and what steps they can take to fix it.

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There's no need to slog through pages and pages of dense text to get your dunning letter. Additionally, it is more likely to discourage your clients from paying, as well as being inefficient. Use bullet points to highlight important information, such as deadlines or sums payable, to make your copy easier to read.

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How does Dunning affect the Company's Cash Flow?

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This process can have a significant effect on a company's cash flow, as it can result in more timely payments from customers. When a customer falls behind on payments, the company may begin the dunning process in an effort to collect the debt. This can involve sending multiple collection notices and making phone calls to the customer. An automated dunning system can help to streamline the dunning process and make it more efficient. This will free up time and resources that can be better utilized elsewhere in the business.

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While dunning can be an effective way to collect payments, it is important to consider the potential impacts on customer relationships before implementing this strategy.  

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Is there any Drawback to Dunning?

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Of course, dunning is not without its drawbacks. The main one is that it can damage relationships with customers. If done incorrectly, dunning can come across as aggressive and push customers away. This is why it’s important to strike a balance – you don’t want to annoy your customers, but you also want to make sure they pay what they owe.

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Can we Automate Dunning or Payment Collection?

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The short answer is yes, you can automate dunning or payment collection processes. The long answer is that it depends on your organization’s specific needs.

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Payment collection refers to the process of actually collecting payments from customers. Both dunning and payment collection can be time-consuming tasks if done manually. Automating these processes can help save time and improve efficiency. 

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There are a few things to consider before automating either process. 

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• First, you need to have a clear understanding of your customer base and what type of reminder system would work best for them. 
• Second, you need to have a robust payment processing system in place. 

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If you have all of this in place, then automating your dunning and payment collection processes can be a great way to improve your bottom line.

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VisionERA can help process payments faster with better document automation and share data with downstream applications in real-time or batch processing. VisionERA is trained to handle the most difficult paperwork, but what sets them apart is their unwavering focus on customer satisfaction.