Dunning Management Best Practices

Dunning management is required if customers fail to pay for their goods and services in full and on time. Maybe the customer’s card which you have on file has expired - or maybe they’ve simply forgotten an invoice. Whatever the reason, as a UK business owner it’s important to understand dunning process best practices to make sure you can get paid without negatively impacting customer relationships. Read on for all there is to know about dunning management, to help you handle even the trickiest of situations.

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What is dunning and how does it work?

Dunning has its roots back in the 1600s when it was coined to describe the steps a business owner needed to take to reclaim funds when a customer fails to pay.

While the dunning process - also known as the dunning cycle - might look a little different today, the challenge is still the same. As a UK business owner you want to get paid with minimum hassle, low or no disruption to business, and without upsetting valuable customers.

There are some pretty common examples of times when dunning management is needed. For example, you might be a freelancer who issues monthly invoices to clients, with clear payment terms and deadlines. If you discover that an invoice hasn't been paid by the agreed date, you’d need to start the dunning cycle - getting in touch with the client to follow up, starting with a gentle approach, through to more serious or legal measures if needed.

While chasing down client debts is hardly a fun part of running a business, it needs to happen to manage cash flow and profitability - and luckily there are various options of software for dunning management which can make the experience less painful. More on that later.

Dunning process

Exactly how the dunning process works will depend a lot on the amount you’re owed, how late the payment is, your contract terms and so on.

Some businesses have an automated dunning process which runs through their accounting software, automatically issuing follow up invoices and reminders, and alerting you of a missed payment.

Other entrepreneurs may have a more manual dunning management system, following up missed invoices individually by phone or letter.

No matter what type of process you opt for, dunning tends to follow a broadly similar cycle:

• You identify a missed invoice, often when reconciling your accounts.
• You’ll follow up with the client informally, perhaps with a phone call or email, or by reissuing the invoice with a reminder.
• If the invoice is not settled you may step up to more formal measures, visiting the client in person if feasible or invoking penalty clauses in your contract if applicable.
• Ultimately if the payment is not received you may decide to call in third party debt collector agencies, or even to escalate to legal action, depending on the situation.

As you can see, the flow is likely to start with an extremely polite and informal approach to the customer who owes you money, with the ultimate aim of resolving the issue amicably. This is very often possible if a customer has simply missed a payment deadline or allowed a card to expire without realising it.

The ideal is to get paid without damaging the relationship you have with the customer. However, if this proves impossible, you may need to take a series of escalating steps to chase up the money, with a view to the time and hassle involved, and any extra costs you might incur by pursuing the claim.

Dunning management benefits

In a perfect world, dunning management simply wouldn’t be necessary, as customers would pay on time and in full without any need for reminders. As your business expands and you take on more and more customers, the reality is that you’re likely to need to enter a dunning process at some point.

The benefits of a strong and considered dunning management approach include:

• Control and manage your cash flow by encouraging and ensuring timely payments.
• Don’t miss out on income and profits through lost customer payments.
• Maintain positive customer relationships by running a friendly dunning process as far as possible.
• Present a professional image to customers, even when approaching a thorny issue.
• Reduce customer churn if customer payments are ended accidentally - a card expiring on a subscription for example.
• With dunning management software you can often automate much of the process, resolving many issues without needing to intervene.

Dunning process best practices

While the exact way you manage dunning may be different from one business to the next, there are some handy best practices related to the dunning process which it’s worth thinking about:

• Make it easy for your customer to pay - offer multiple payment methods, and consider using a provider like Wise Business to take foreign currency payments.
• Make payment dates and terms very clear on your invoices - this makes follow up much more straightforward, and reduces the risk of misunderstanding.
• Stick to timescales - follow up invoices in a timely manner, or automate dunning so your software automatically follows up unpaid bills without you needing to take action.
• Check the obvious - before you reach out to a customer see if you can spot why the payment has failed, such as an expiring card or an incorrect date on an invoice.
• For B2B issues, check for insolvency - if your customer’s business has gone under you can find this from official public records.¹
• Start with a friendly, empathetic and informal approach - if your client has missed a payment accidentally, this will maintain your relationship.
• Check if there are any disputes or issues - if the customer is not paying because of a perceived failure on your part, this should be resolved before pursuing the claim.
• Be clear on the consequences of not paying - if you need to escalate your claim, make sure you’re communicating clearly about penalties or follow up actions, such as starting litigation or calling in debt collectors.

Software for dunning management

Using an automated dunning process can save time and cut down on the amount of manual admin required. It can also reduce the chance of human error - such as missing an unpaid invoice and needing to follow up months later.

Automated dunning features will simply check payments when they come in, and if an invoice is not fulfilled an automatic follow up will be sent - either an email requesting the payment, or an invoice reminder for example.

Here are a few of the providers available in the UK that help businesses with dunning management:

• Paddle - Retain²
• Chargebee - Subscription management³
• Churnkey⁴
• Stripe - Billing features⁵
• Zoho⁶

In some cases you can get specific software which offers dunning management as a primary feature - or the dunning cycle might be built into your accounting or payment processing software for example. Check out a few options to see which might suit you best, depending on your business needs and the volumes you’re dealing with.

How to implement dunning management? Step-by-step

Let’s walk through some common steps if you need to start dunning management in a UK business. Exactly what you’ll need to do can vary depending on your business type, the amount you’re owed, the specific customer and how overdue the payment is, but the flow is usually pretty similar:

1. Identify any unpaid invoices which have run past their due date
If you have accounting software this may happen automatically. If you bill manually you’ll need to check and reconcile your accounts - monthly at least - to make sure that invoices which have been sent have been cleared down.

2. Get in touch with the client
It’s worth looking to see if the reason for the missed payment is obvious before you start a conversation with the client. If it’s as simple as an expired card, the process for recovering your money is likely to be fairly simple.

Your first approach to the customer should be friendly, empathetic and informal - a phone call or email should suffice. State clearly which invoice has not been paid, and the due date, as well as the amount. You may want to reissue the invoice for the avoidance of doubt, with a clear message on when the payment should be received.

3. Follow up more formally
If payment is not received within your stated timescale you will need to escalate. If you have penalty clauses in your contract you could inform the client these will now be invoked. Or, if the debt is very large you may want to pass the matter to a debt collection agency.

Your actions at this point will depend on the customer’s situation - if you’re unsure whether or not they’re receiving your messages, it’s worth trying other methods first, such as phone, mail or an in person visit, to make sure you’re communicating clearly.

4. Threaten or move to legal action if needed
Hopefully it won’t come to this, but if you still have not been able to conclude the matter you may choose to move to legal action. Your options here may vary depending on the contract you had in place and the value of the payment.

The UK’s Small Business Commissioner⁷ advises taking legal advice to understand your options - you can take small claims of under 100,000 GBP to the small claims court, with hearing fees starting from around 25 GBP, and enforcement costs on top of that.

FAQs - dunning management

What is an example of a dunning process?

You may enter into a dunning process if a customer fails to pay a business invoice. In dunning management you’ll need to contact the customer to remind them of the amount owed, informally at first, with the option to escalate to enforcement or legal action if needed at a later stage.

What are examples of dunning messages?

The first contact with a customer during dunning should be friendly - perhaps a reminder email or a reissued invoice which clarifies the due date. If the payment is not received, your dunning messages are likely to move from informal to formal, including using legal channels if needed.

What is the difference between customer dunning and collection management?

Customer dunning usually refers to the initial actions taken by a business to reclaim unpaid funds from a customer. If the customer does not pay you might pass the case on for collection management - the process of taking more decisive action to recover funds, such as calling in bailiffs.

What types of businesses need dunning management?

Any business which issues customer invoices or which offers ongoing payment options such as subscriptions or retainers may need dunning management. The good news is that lots of accounting packages offer some dunning management tools as part of the accounting package, making it far easier to chase up late payments automatically.

How can Wise Business help?

Making it easier for international customers to pay can have a great impact on invoice payment collections. That’s where Wise Business comes in.

With a Wise Business account you’ll get local account details in 8+ currencies, which businesses in the UK can use to collect payments in the customer's local currency. Just add these account details to your invoice, based on the currency required.

This makes it easier and cheaper for the customer to pay you - plus, with Wise you can manage 40+ currencies in your account, to spend with your debit or expense card, send to suppliers and contractors in 160+ countries, or convert back to GBP and withdraw. You’ll get the mid-market rate for currency conversion, with low and transparent fees.

Get started with Wise Business 🚀

Managing a dunning process may not be a lot of fun, but it’s likely to be necessary at some point. Use this guide to get up to speed with what’s involved, and check out Wise Business as a simple way to make it easier for customers to pay you, wherever in the world they might be.

Sources used in this article:

Sources last checked November 11, 2024