What is Dunning and How To Recover From It

What is Dunning and How to Recover from It?

Customer Churn – the nemesis of subscription-based businesses. There’s nothing more frustrating than seeing your customers turn from your business and end their subscriptions. Fortunately, dunning has developed recently and has been the go-to solution for reducing customer churn rate. However, does dunning software really work? Let’s find out.

What is Dunning?

What exactly is dunning and why should you know more about it? First, let’s look at the root word of dunning, which is ‘dun.’ This term means making persistent demands. It also means to plague or pester. From that standpoint, you can tell that it doesn’t sound very enticing. However, that’s just the root word.

A dunning solution is a strategy that involves contacting customers and informing them about a particular invoice that’s nearing its due. A dunning software is used, which will take steps to contact customers about collecting payments that are due on your subscription-based business. It ensures that the recovery rate of your business from potential churn is strong. At the same time, it also looks into reference data to get more information on what needs to be done.

You might wonder why dunning solutions has become a necessity. You can just reach out to a customer without having to rely on a software right? But if you factor in the fact that small businesses in the United States have around $825 billion of unpaid invoices, you will realize the extreme importance of having a dunning solution or other churn-rate-reducing software.

Why Credit Cards Fail?

There are plenty of reasons why churn happens is failed credit card payments. This can be due to the following scenarios:

  • Card Expiry
  • Card Numbers entered incorrectly.
  • Credit Card was reported stolen or lost.
  • The bank thinks that the transaction is malicious or fraudulent.
  • The bank has blocked a transaction.

Related: 10 Credit Card Error Messages and How To Deal with Them

Proper dunning management is all about acknowledging why cards fail in the first place. No matter what the reason may be, failed credit card payments will still hurt your business. If left unchecked, it can have a crushing effect on your SaaS business. Fortunately, ReliaBills isn’t here to offer our expert invoicing services. We also help solve some of the problems that most of our valued clients are dealing with.

How Does Dunning Work?

There are a variety of tactics that a dunning software uses before and after card payments are due. The majority of them deal with template emails.

Dunning solutions that are done before an account becomes past due include the following:

Card expiration emails. As the old saying goes, “prevention is better than cure.” These emails will remind your customer that their credit card is about to expire and they need to take action right away. You can automate these emails at different points to contact the customer and inform them that they have a certain number of days before their card expires.

Retries. This tactic is used right after an account is past-due. The dunning software will be sending multiple emails to customer at this point. The dunning emails include:

  • Information about the amount owed
  • The duration of you retrying their credit card
  • Options on how they can update their payments

Dunning Alternatives

Dunning solution is only an option when it comes to reducing customer churn rate. You can have alternatives to go along with it. But if it’s a sophisticated system, why should you consider a dunning alternative? Here are some reasons why:

Ignored Automation

Because of the lack of any viable replacement, dunning solutions have been regarded by most subscription-based business owners as a necessary and must-have feature. However; like most strategies, dunning also has its fair share of flaws.

Why Get Alternatives for Dunning?

But despite SaaS businesses making extreme efforts to tailor their payment recovery software to encourage customers to update their card details, it remains a fact that dunning solutions only recover around 15 percent of the total number of billing problems. It’s quite a minuscule number, don’t you think?

Another reason is that your customers know they’re getting something that’s automated, which gives them enough reason to put off any payment email until an actual person contacts them. Just think about it. When a person sees an automated email asking for payment, they’d immediately think, “I can leave this for another day.”

No Empathy

Another reason why dunning and other recovery software is so abysmal at customer retention is because it’s very hard to show empathy with an automated system. Empathy is an essential human trait that helps customers feel heard, understood, and respected. Unfortunately, an automated payment recovery software doesn’t have this natural ability. It even does the complete opposite. They can’t show empathy even when your customers have a valid reason for their credit cards failing. This lack of empathy can frustrate any customer and give them every inch of reason not to pay.

Inability to Problem-Solve

Another thing that dunning software can’t do is solve problems. Your dunning software can’t shift to different strategies. It can’t change its mind, negotiate with customers, or work with customer to make their payment work. That’s the inconvenience of automation. It’s also the reason why despite automation, you still need someone to constantly look at analytics and make the necessary changes and adjustment s to get the most out of this system.

How To Turn Dunning Process to a Positive Process?

Despite its issues and inconveniences, a dunning solution is a process that can still yield a positive customer experience. Dunning is something that most businesses are incorporating to their business due to its effectiveness. However, it’s your responsibility to set the tone and intent very clearly from the beginning. Here are some best practices that you should follow to make dunning software work and strengthen customer relationships with your business.

Make Your Intentions and Next Steps CLEAR

Getting spam emails or false dunning letters are not unusual. You’re asking money after all. So when composing a dunning emails, make sure you choose your language and tone carefully. Make sure you the following elements are expressed clearly in your email:

  • Why you are a friendly agent from a trusted and reputable company.
  • The payment type and suggestions as to why the payment may have been declined.
  • The amount and nature of the outstanding balance. For example, “you’re on the $15 per month plan and owe $45 for the last three months.”
  • The date when you will process the next payment.
  • A link back to your payment page and any other payment instructions.

Get Your Subject Line Right

Subject lines may look useless. But keep in mind that it plays a crucial role in whether or not your dunning emails will be opened by the customer. Make sure your subject line is professional and clear. That way, the recipient will know that it’s important and urgent.

Here’s an example of a good dunning email subject line: “Action Required: Payment Failure Due to [state reason].”

Be Empathetic

Once you have your customer’s attention, be as empathetic as you can. Despite the failed payment, view them as a customer; not a debtor. Approach the correspondence with the same treatment that you would when making a sale. Remember that the apart from recovering lost revenue, another purpose of the dunning process is to retain as many customers as you can. So don’t give your customers more reasons to leave. Understand them and be optimistic about the entire situation.

In addition, make a point of telling your customers that you want to make sure that they keep enjoying your services now and in the future. This dunning technique will ensure that they keep coming back for what your business offers.

NEVER – it’s all caps so you understand that it’s very serious – blame your customer. Chances are, your customer is completely clueless that their payment has not gone through or why payment didn’t go through.

No word can describe the necessity of having a dunning solution in place for your business. However, a dunning management solution won’t be worth it if you don’t use the right tools. If you want to get paid on time, you need a good invoicing system to help you collect money from your customers.

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