Mastering Dunning: A Vital Guide to Optimize Payment Recovery

Unlocking the Power of Dunning: From Historical Roots to Cutting-Edge Strategies
Source: Bigstock

Subscription and recurring revenue business success hinges on retention. Customer relationships start long before a subscription, making trust-building and aligning with customer needs paramount. Despite these efforts, payment failures can still occur. When a payment falters, what steps should a subscription business take? The answer lies in Dunning, a term often nuanced and not fully understood in the subscription world.

While statistics can vary based on industry and practices, efficient dunning strategies can lead to a reduction in churn rates by up to 30%, significantly improving revenue retention. Additionally, businesses with optimized dunning processes have reported a 20-25% increase in overall revenue compared to those with less effective strategies.

This guide aims to demystify Dunning. We delve into its historical context, current practices, tools, and strategies essential for recovering failed payments to better understand how to navigate payment failures and nurture positive subscriber relationships, critical for sustaining profitability and growth in a competitive market.

  • Understanding Dunning: Historical Insights and Modern Adaptations
  • The Essence of Dunning Today: A Holistic View Beyond Notifications
  • Navigating Dunning Payment Recovery: A Comprehensive Approach
  • Tools and Platforms: The Backbone of Effective Dunning Strategies
  • The Dynamics of Dynamic Dunning: Optimizing Customer-Centric Recovery

 

Source: Bigstock

Understanding Dunning: Historical Insights and Modern Adaptations

The term “dunning” has historical roots tracing back to the late Middle Ages and the early modern period in Europe. It originated from the name of a town in Bavaria, Germany, called “Dünnung.” This town was known for its fabric production, particularly woolen cloth, and had a significant impact on the local economy.

During this time, Dünnung had a reputation for producing high-quality textiles. As a result, many cloth merchants and traders from neighboring regions would visit the town to purchase goods for resale. However, due to the success of Dünnung’s fabric industry, it attracted significant attention from other textile-producing towns and regions.

Competing cloth producers sought ways to undermine Dünnung’s prominence in the market. They would frequently discredit the quality of Dünnung’s textiles, claiming they were of inferior quality or defective. To counter these attempts to tarnish their reputation, the merchants and weavers of Dünnung adopted assertive measures.

The merchants from Dünnung began to actively pursue unpaid debts owed by those who had purchased their textiles but failed to pay promptly or at all. They became known for their persistent and sometimes forceful pursuit of collecting outstanding payments. This practice of assertively collecting debts, particularly in the textile industry, eventually acquired the name “dunning.”

Over time, the term “dunning” expanded beyond the textile industry and evolved to refer more broadly to the act of persistently demanding payment of debts or overdue accounts. It became associated with the process of sending reminders, notices, or communications to collect payments owed, especially in business contexts.

Today, the concept of dunning remains relevant in various industries, particularly in subscription-based businesses and finance, where reminders and communications are sent to customers with outstanding payments to encourage them to settle their dues. The evolution of dunning has progressed from assertive debt collection practices to more sophisticated, customer-centric approaches aimed at recovering payments while maintaining positive customer relationships.

 

Retention Vs Churn Keep Customers Loyal Return Vs Loss 3d Illustration
Source: Bigstock Photo

The Essence of Dunning Today: A Holistic View Beyond Notifications

Dunning today refers to the entire journey related to handling failed or overdue payments within a subscription service. It encompasses more than just sending reminders to customers about unpaid bills. It’s a comprehensive process that involves:

  1. Communication: Sending reminders, notifications, or alerts to customers regarding payment issues. This step informs them about the problem and prompts action to resolve it.
  1. Payment Recovery Process: Beyond reminders, it involves the steps taken to retrieve the failed payment. This might include automated retries, offering alternative payment methods, or providing customer support to address any underlying issues causing the payment failure.
  1. Customer Interaction: Engaging with customers to help them resolve the payment problem. This could involve customer service interactions to resolve billing issues or offering assistance in completing the payment.

In essence, dunning isn’t just about sending notifications (which some people only think dunning is); it’s the entire process that aims to recover failed payments, involving both communication with customers and the technical steps taken to resolve the payment issue.

 

 

Customer retention strategy, Digital inbound marketing, Customer attraction flat ultraviolet vector banner infographics with icons isolated on dark background. Hand with big magnet.
Source: Bigstock

Navigating Dunning Payment Recovery: A Comprehensive Approach

Dunning payment recovery in subscriptions involves a series of steps and often leverages various tools and platforms to recover failed payments from subscribers.

As a reminder, prior to a charge, the best practice is to send legally required renewal notices, and in addition, many subscription companies are now running upcoming charges through updater services to minimize the number of failed payments upfront.

But once a payment fails, here’s an overview of the process, tools, and platforms commonly used:

  1. Notification: Effective dunning communications strategies aim to encourage timely payments without alienating customers. It involves a delicate balance between reminding customers of their obligations and maintaining positive customer relations to ensure continued business interactions. Automated emails or notifications are sent immediately when a payment fails. These messages inform the subscriber about the failed transaction.
    • Initially, gentle reminders are sent (or shown via banners on a website or app) to inform customers of an upcoming or overdue payment. These notices are often friendly in tone, emphasize the benefits of their subscription, and aim to nudge customers to take action.
    • As payments become more overdue, dunning communications might become more assertive or frequent. For example, sending follow-up UI notifications, emails, letters, or even making phone calls to request payment. Your business will need to make a decision as to when access to your subscription will stop and alert them to that upcoming deadline as well as inform them access has stopped until payment is received.)
  2.  Retry Mechanisms: Automated retries aim to process the failed payment again after a specific interval, typically in a few days or weeks. Multiple retries might be scheduled over a defined timeline.
  3. Alternate Payment Methods: Offering alternative payment options can help subscribers update their payment details or use different payment methods to settle the outstanding balance.
  4. Communication Channels: Providing customer support through multiple channels like chat, phone, or email helps resolve payment issues and assists customers in updating payment information.
    • Many subscription businesses use automated systems to manage dunning communications processes, scheduling reminders at specific intervals or triggering notifications based on predefined criteria (e.g., a payment reaching a certain number of days past due). This is a very helpful strategy that we recommend so you can create communications rules based on payment recovery success/failure so you don’t, as an example, ask the subscriber to update their payment info after you were able to update it through other means.
  5. Grace Periods: Some subscription services offer a grace period, allowing subscribers additional time to rectify payment issues before suspending or canceling their subscription while others do not or cannot – that is a decision based on your business. For example, if you ship out a subscription box, there are costs involved that would point to not offering a long grace period versus a digital subscription where the cost equation of fulfilling that subscription while getting that failed payment in, is different.

 

Source: Bigstock

Tools and Platforms: The Backbone of Effective Dunning Strategies

Here’s a detailed look at the key tools, platforms, and systems essential for shaping a robust technology stack to bolster your dunning strategies.

  1. Subscription Management Platforms: Most subscription management platforms offer dunning management features as part of their subscription management tools. Get clear on what they do and do not do (communications, automation, payment retries, etc…), how easy (or hard) they are to use, and what type of dunning reporting they offer to make sure it’s the best fit for your organization.
  2. CRM Systems: Customer Relationship Management (CRM) systems like Salesforce often integrate with billing platforms to manage customer interactions and dunning communications.
  3. Email and SMS Automation Tools: Most email service and SMS providers assist in setting up automated email sequences for dunning notifications. Understand if the one you have has a native integration into your billing platform or your team will need to use a service like Zapier to make it work.
  4. Payment Gateways: Services like PayPal, Braintree, or even Stripe provide tools to manage recurring payments and dunning processes. Understand how they work with your specific subscription management and automation setup.
  5. Analytics and Reporting:  Tools for tracking and analyzing payment data, such as ChartMogul or Baremetrics, help monitor subscriber behavior and identify payment issues.
  6.  “Dead” Payment Cards: Leverage tools like VIndicia Retail or Flexpay to recover payment cards that are effectively dead and unable to charge.

The choice of tools and platforms depends on your subscription business’s specific needs, volume, and scale. Integration between these systems allows for a streamlined dunning process, ensuring prompt and effective payment recovery while maintaining positive customer experiences.


Customer Retention concept on the gearwheels 3D rendering
Source: BigStock

The Dynamics of Dynamic Dunning: Optimizing Customer-Centric Recovery

Dynamic dunning is an adaptive approach within payment recovery systems that tailors the dunning process based on individual customer behaviors, payment patterns, and responses. It essentially customizes the dunning communication and escalation process dynamically according to the customer’s actions or lack thereof. Here’s how it fits into the broader context of balancing automated payment recovery and customer communication:

  1. Behavior-Based Triggers: Dynamic dunning uses triggers based on customer behavior. For instance, if a customer habitually pays late but eventually settles their dues, the system might adjust the timing or tone of the reminders to align with their payment habits.
  2. Adaptive Timing and Sequencing: Instead of following a fixed schedule, dynamic dunning adjusts the timing and frequency of messages based on customer response. For example, if a customer responds positively or interacts with the initial reminder, the system might delay subsequent, more assertive reminders.
  3. Customer Response Monitoring: This approach tracks customer responses or interactions with dunning communications. If a customer acknowledges a payment issue or requests more time, the system may pause reminders temporarily or adjust the message to reflect the ongoing conversation.
  4. Personalization and Segmentation: Dynamic dunning often uses segmentation and personalization techniques. It may categorize customers into segments based on payment behavior, allowing for more targeted and relevant communications that resonate better with each group.
  5. Optimization through Machine Learning: Some dynamic dunning systems leverage machine learning algorithms to analyze patterns, predict payment behavior, and continuously optimize the dunning process based on the success rates of different approaches.
  6. Balancing Aggressiveness: The system balances the aggressiveness of dunning messages. If a customer has historically responded well to softer reminders, the system may limit more forceful communications, preserving the customer relationship.

Dynamic dunning fits into the balance between automated payment recovery and customer communication by offering a more adaptive and customer-centric approach. It aims to optimize payment recovery while considering individual customer preferences, behaviors, and responses, thereby maintaining a delicate balance between successful recovery and customer satisfaction.


Dunning represents more than mere notifications; it’s a comprehensive journey encompassing communication, recovery processes, and customer interaction. Leveraging the right tools and platforms is crucial to execute successful dunning strategies. Dynamic dunning’s adaptive approach offers a tailored experience, balancing recovery and customer satisfaction. Ultimately, understanding dunning’s evolution and adopting modern, customer-centric strategies can significantly impact subscription business profitability.

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