What is a Dunning Letter? Definition With Examples
Dealing with overdue payments is a challenge that plagues finance leaders in countless companies. Dunning letters are an effective and widely used tool to tackle this issue, but many business leaders and managers are not familiar with the concept. In this article, we will explore what a dunning letter is, why customers pay late, the traditional dunning process, and how an accounts receivable (AR) automation tool can help. Additionally, we'll provide an example of a dunning letter to help you get started.
What is a Dunning Letter?
A dunning letter, or dunning reminder, is a notice sent to customers with overdue payments. Collection teams use dunning notices to monitor and prevent delinquent customer accounts, urging customers to settle their outstanding payments promptly. Implementing dunning letters in your accounts receivable process can help maintain healthy cash flow, lower delinquencies, and manage your Days Sales Outstanding (DSO) for improved financial metrics.
Why Do Customers Pay Late?
Late payments can occur for various reasons, including financial constraints, forgetfulness, or communication issues between the company and customers. Additionally, a company's billing or service quality could contribute to late payments. Regardless of the reason, employing a method to remind customers of their obligations and encourage timely payments is vital.
What is the Traditional Dunning Process, and How Does an AR Automation Tool Help?
The dunning reminder process can vary depending on collection teams' preferences and customer interaction approaches. However, to avoid complications, most teams follow these general steps:
- Identifying customer accounts with overdue payments
- Gathering a list of all delinquent accounts
- Drafting overdue payment reminders to customers with past-due balances
- Issuing customer payment notices by sending dunning letters
- Receiving payment from customers
AR automation tools are game-changers when it comes to issuing dunning letters to customers with overdue payments. These solutions automate the entire collections notice process, eliminating the need to draft and send dunning letters manually. Automation tools can accurately identify customers with past-due payments, allowing you to save time and focus on other essential tasks.
Examples of Dunning Letters
To help you navigate the payment collection process, we've provided an example of an initial dunning reminder that you might send to customers with overdue balances:
Subject: Friendly Reminder: You Have an Overdue Payment
Hello [Customer’s Name],
We hope this message finds you well. We are bringing to your attention that your recent invoice, dated [Invoice Date], remains unpaid. Our records indicate that the payment is [Number of Days] overdue.
We request that you settle the outstanding amount of [Amount Due] at your earliest convenience. If you have already paid your balance, you can ignore this letter. Please get in touch with our support team if you have any concerns or need assistance.
Please view the attached invoice. Thank you for your attention to this matter.
Sincerely,
[Company Name]
Find More From Centime
By understanding dunning letters' significance and incorporating them into your accounts receivable management, you can maintain strong relationships with customers and keep your financial metrics in good shape. Now that you're equipped with the knowledge and tools, you're one step closer to optimizing your company's account receivables management. Contact us today to see how Centime can help you with the dunning letter process.