Dunning
ˈdənɪŋ
Dunning is the communication process businesses use to collect late payments from customers. It occurs after a customer’s debit or credit card is declined, there is a technical issue in the payment system, or the shopper has insufficient funds.
Dunning typically starts with an email notification to the customer. If the payment issue remains unresolved, follow-ups may include:
- Email reminders: Follow-up payment requests.
- SMS notifications: Text reminders for customers who may miss emails.
- Phone calls: Direct outreach for unresolved payments.
- Legal escalation (rare): In extreme cases, legal action may be considered for high-value debts.
Most businesses prefer automated dunning sequences to maintain efficiency and minimize friction in the customer experience.
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Why is dunning important?
Effective dunning helps businesses maintain cash flow, reduce customer churn, and minimize “bad debt”—when money owed is considered uncollectible after repeated attempts to collect. Dunning also establishes a system for collecting debt that helps maintain positive customer relationships.
Dunning vs automated payment retries
Payment retries are when a business attempts to process a payment after an initial failure. Unlike dunning, retrying a payment doesn’t involve interacting with a customer, reducing buying friction and negative customer sentiment.
Both dunning and payment retries are powerful tools. However, automated payment retries are more scalable, efficient, and effective than dunning. The payment ecosystem is highly complex, and automated retries solve issues by updating payment details and trying transactions when they are more likely to succeed.
Unlike other payment recovery solutions, Butter uses advanced machine-learning technology to analyze transaction metadata to determine the most effective retry strategy for each category of failed payment.
Dunning best practices
1. Maximize recovery with automated retries
The best solution for dunning is to avoid it. Pairing your dunning strategy with automated retries reduces overall dunning communication and frees internal resources to concentrate on other revenue-generating opportunities.
2. Be respectful and empathetic
Your customers don’t want to be in this situation any more than you do—be respectful and empathetic in your communication. Accusatory and harsh language can trigger strong emotions and decrease the likelihood of recovering money. Instead, acknowledge that the non-payment might have been caused by a technical error or a change in the subscriber's financial situation, such as a subscriber needing a new card because their old one was stolen.
3. Offer payment alternatives
Offering alternative payment methods like digital wallets (Apple Pay, PayPal) increases flexibility. For example, a customer might have deactivated a card but have access to another with an alternative method.