Definition of Dunning
Dunning is the process of systematically communicating with customers to collect overdue payments and resolve failed transactions. In subscription and billing contexts, it refers to the structured series of reminders and actions taken when a payment fails or an invoice becomes past due.
How Dunning Works
Dunning typically begins when a payment attempt fails or an invoice passes its due date. The process follows a predefined schedule of reminders, starting with polite notifications and gradually escalating in urgency if the issue remains unresolved. These communications aim to prompt payment before service suspension or formal collections occur.
Dunning Explained for a General Audience
For a general audience, dunning is the follow-up you receive when a payment doesn’t go through. It might start with a friendly email asking you to update your payment details, followed by additional reminders if no action is taken. The goal is to resolve the issue without immediately cutting off service or involving collections.
Why Dunning Is Important
Dunning plays a critical role in protecting revenue. Many missed payments are unintentional, such as expired credit cards or temporary payment issues. Without an effective dunning process, these accidental failures can lead to unnecessary revenue loss.
Dunning and Involuntary Churn
In subscription businesses, failed payments are a major cause of involuntary churn. A strong dunning process helps recover payments before customers are lost permanently. By resolving payment issues quickly, companies can retain customers who still want the product or service.
Automation in Dunning
Modern billing systems use automated dunning workflows that retry payments, send reminders at scheduled intervals, and provide easy ways for customers to update their payment information. Automation ensures consistency and reduces the operational burden on finance and support teams.
Tone and Escalation in Dunning
Effective dunning balances persistence with professionalism. Messages typically start friendly and become more urgent over time, while remaining respectful. Clear communication about consequences—such as service suspension—helps encourage timely resolution.
Dunning vs Collections
Dunning occurs before formal collections. Its purpose is to recover payment while preserving the customer relationship. If dunning fails, companies may escalate to service suspension or external collections, which are more aggressive and costly steps.
Dunning in Ratio’s Context
In Ratio’s context, dunning is handled as part of automated collections. When customers are on financed payment plans, Ratio manages reminders and follow-ups for missed payments, relieving sellers from the responsibility of chasing overdue invoices.
Advanced Dunning Practices
More advanced dunning setups may use multiple communication channels, such as email and SMS, vary message timing, and include customer support outreach. Some messages invite customers to seek help if payment issues reflect broader concerns.
Why Dunning Matters in a Glossary Context
Including dunning in a glossary explains a key operational process that directly affects revenue retention and customer experience. Understanding dunning helps clarify how subscription businesses manage payment failures and reduce revenue leakage.
Summary
Dunning is the structured process of recovering overdue payments through polite but persistent communication. It helps prevent accidental payment failures from turning into lost customers. A strong dunning strategy improves revenue retention, reduces churn, and maintains healthy customer relationships.
