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What is Dunning and How Can It Save Your Revenue?

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So, what is dunning anyway? Why do we keep hearing about it? Does it even work? Should subscription businesses keep implementing dunning strategies?

These are just some of the many questions that plague subscription businesses and membership sites.

Read on to get a deeper understanding of dunning and what it can do for your business.

What is dunning?

Dunning is the process of communicating with customers to make sure that all bills and account receivables are collected.

In the pre-SaaS and membership sites era, dunning was associated with collecting dues. Today, dunning refers to how companies follow up with customers whose payments have failed.

Failed payments can be due to any of the following reasons: 

  • The credit card was expired, stolen, or lost
  • Did not update payment method or account details
  • The system detected a possible fraud or suspicious activity
  • The credit card has reached their maximum limit

Since failed payments are unintentional, this means that the customers didn’t do this on purpose. However, in 2020, failed payments cost the global enemy an estimate of $118.5 billion in fees, labor, and lost business

When failed payments happen, companies execute their dunning process. Some do it manually, while some choose to go with an automated process.

How does the dunning process work? 

The failed payment triggers the whole dunning process until any of the two outcomes happen:

  • Customer updates payment details, retries, and payment succeeds.
  • Customer ignores all dunning attempts and their subscription ends up being canceled.

The dunning process itself varies from one company to another. 

After all, there are a lot of tools and strategies that business owners use in their attempts to recover failed payments. When it comes to the methods of executing the dunning process, here are the different types:

Automatic attempts by payment processors

Payment processors usually have automation to help collect failed payments. Here are a couple of examples:

  1. Stripe, for example, has Smart Retries. Stripe uses machine learning to choose the best times to retry failed payments. That way, there’s a higher chance of an invoice being paid. This feature has eight attempts within a timeframe that businesses can customize. 
  2. Meanwhile, Recharge also has built-in dunning features for credit cards that get declined, such as automatic retries at intervals of your choice and creating automatic support tickets when dunning occurs. Additionally, Recharge works with third-party integrations like Recover Payments to optimize the entire failed payment recovery process.

Notifications via SMS or email

Since failed payments are involuntary, you need to inform your customers so they can update what needs to be updated so the amount can go through.

Did you know that 99% of email users check their email inbox daily? On the other hand, SMS notifications have a 98% open rate—with most messages being read in the first 30 minutes of receiving. 

SMS and email notifications can be sent manually, but they can also be automated. Stripe allows businesses to send out automated emails to customers during the Smart Retries process. Recharge allows automated emails and text messages when a charge attempt fails. 

Aside from Stripe and Recharge, there are other software that specialize in dunning. All subscription businesses and membership sites should definitely have a dunning campaign that is ready to go out as soon as there’s a failed payment. 

Important note: Your dunning messages should include the reason for failed payment, what the customer should do to resolve the issue, and a clear-cut path to customer support. 

Phone calls from a customer support team

Phone calls are used as follow-ups when SMS and email notifications are unsuccessful. If you have your customers’ phone numbers, that’s already a huge win.

However, a phone call can be a double-edged sword. While it is a great way to engage and strengthen relationships with your customers, a phone call can also easily annoy and turn them off.

So how should you approach phone calls? The answer: Focus on personalization. Review your customer’s experience with your company so far, so you can tailor your phone call.

Here are some tips for outbound calls:

  1. Prepare general phone scripts depending on various customer segments.
  2. Find out why the payment failed before getting on a call.
  3. Pinpoint the last dunning communication your customer received. 
  4. Plan out your strategy and align with the script before calling the customer.

Bonus tip: when failed payment recovery attempts become too much for you to handle, you may want to consider outsourcing a team that specializes in it.

Making use of a dunning management software

There are a lot of available software options that can help manage your dunning campaigns and payment recovery efforts. These can be installed and integrated with your existing payment gateways too.

A dunning management software automates the payment recovery process and streamlines the efforts across all channels involved.

Instead of manually checking and following up on each failed payment, the entire process can happen in the background. 

In short, dunning management software saves you time and resources so you can focus on other aspects of your business—like strengthening your nurture and retention programs.

For starters, you can check out Stripe’s directory and Recharge’s apps.

Wrap up: Combine these different dunning elements to recover your lost revenue

The best results will actually come from a mix of all the strategies mentioned above. Set up a dunning management software and execute a cadence of email, SMS, and phone call reminders with a personal touch.

Recover Payments can do this for you—both the digital process and the human touch. Book a free consultation with a recovery specialist to see how you can start making this happen.

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Regina Ongkiko

Regina Ongkiko

Regina is a freelance content writer for B2B, tech, and SaaS companies. She is passionate about creating content that provides value and impacts businesses. You can read more of her work at reginaongkiko.com. She loves getting her inspiration and ideas from the great outdoors.

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