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 the payment didn’t go through.

Automate the Entire Process

If you want to be more efficient, you’ll need to automate your entire billing process. While it’s important to notify your customers about upcoming payments due, you should also make sure that you send your letter at the exact date and time that will prompt them to make payment. However, you simply can’t do it manually anymore with all the other duties you need to fulfill for your business. That’s why you need the help of a recurring billing software like ReliaBills.

Why ReliaBills?

ReliaBills is more than just an invoicing system. It also does other things to help you get paid. It also employs a recurring billing process that will automate your entire payment processing to ensure that everything will go smoothly with minimal intervention coming from you. ReliaBills will help you set up an effective and efficient recurring billing strategy that puts automation at the forefront of your billing process.

ReliaBills understands your needs and supplements them with an effective recurring billing strategy that will help make your billing system convenient for you and your customers. It also addresses what you are trying to achieve. Whether you’re trying to save time, become more efficient, or grow your business as a whole, ReliaBills has everything you need in terms of billing. 

As we’ve mentioned countless times, ReliaBills does more than anyone to help you get paid. Dunning can be a lengthy process. But with ReliaBills and its recurring billing process, you’ll be able to automate every step of your payment process and make your life easier than ever. From creating your unique invoice to schedule to dealing with late payments, ReliaBills goes the extra mile to help get your invoices paid on time.

How to Get Started?

If your company is based around subscriptions or memberships, recurring billing is going to be a critical part of your success. When you manage your recurring payments quickly and efficiently, you’ll be able to cement a lasting positive impression among your customers, which will help your business grow in the long run. At the same time, having a convenient and efficient billing system will mean your customers are less likely to churn. 

Recurring payments are relatively straightforward and easy to grasp. You will only need to keep in mind the following:

  • Offer the ideal payment method that your target market prefers.
  • Be transparent right from the get-go.
  • Optimize your billing process to reduce as much customer churn as you can.
  • Communicate and reach out to your customers in a timely way.
  • Give your customers the freedom to choose their preferred payment schedule.
  • Manage your pricing to maximize your total revenue potential.

Recurring billing is an excellent way to reduce overheads, keep your customers’ happy while also increasing your profits. If you’re interested and want to experience the potential of recurring billing, check out ReliaBills today.

Wrapping Up

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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