What is Dunning? Understanding the Automated Recovery Process

You send a reminder email about an overdue invoice. Your client calls it "harassment." You're just trying to collect what you're owed, but it feels awkward and personal.

This is the dunning problem. The word "dunning" sounds aggressive, but it's actually just the methodical process of communicating with customers about outstanding debt. When done right, dunning is professional, consistent, and effective.

Modern dunning uses automation to send the right message at the right time through the right channel. It's strategic, not aggressive. It preserves relationships while ensuring payment.

Here's what dunning really means, how it works, and why automation makes it better.

What is Dunning? The Definition

Dunning is the systematic process of communicating with customers about outstanding debt to encourage payment.

In Plain English:

Dunning is asking for money—but doing it methodically, professionally, and consistently. It's not harassment. It's business communication.

The Origin:

The term "dunning" comes from the word "dun," which means to demand payment. Historically, it had negative connotations, but modern dunning is professional and strategic.

What Dunning Includes:

• Invoice Delivery: Sending invoices to customers
• Payment Reminders: Reminding customers about overdue invoices
• Escalation: Increasing urgency as invoices age
• Follow-Up: Tracking payment promises and following up
• Resolution: Resolving disputes and collecting payment

What Dunning Is Not:

• Harassment: Dunning is professional communication, not harassment
• Aggressive: Modern dunning is strategic, not aggressive
• Personal: Dunning is business procedure, not personal attack
• Optional: Dunning is necessary for cash flow management

The Dunning Levels: Understanding the Psychological Progression

Dunning follows a psychological progression from informational to urgent. Each level serves a different purpose and uses different messaging.

Level 1: Informational (Invoice Delivery)

Purpose: Provide invoice information and payment details.

Timing: Invoice sent immediately upon completion or on schedule.

Message Tone: Professional, informative, helpful.

Example:

Subject: Invoice #[INVOICE_NUMBER] - Payment Due [DATE]

Hi [CUSTOMER_NAME],

Your invoice #[INVOICE_NUMBER] for [AMOUNT] is attached. Payment is due on [DUE_DATE].

Payment methods:

• Bank Transfer: [DETAILS]
• Online Portal: [LINK]
• Check: [ADDRESS]

If you have questions, please contact us.

Thanks, [YOUR_NAME]

Why This Works:

This level is purely informational. You're providing invoice details and payment options. No pressure, no urgency—just information. Customers appreciate clarity and convenience.

Level 2: Nudging (Reminders)

Purpose: Remind customers about upcoming or recently due invoices.

Timing: 3-5 days before due date, on due date, 3 days after due date.

Message Tone: Friendly, helpful, professional.

Example:

Subject: Friendly Reminder: Invoice #[INVOICE_NUMBER] Due Soon

Hi [CUSTOMER_NAME],

Just a friendly reminder that invoice #[INVOICE_NUMBER] for [AMOUNT] is due on [DUE_DATE].

I've attached the invoice for your reference. If payment has been sent, please disregard this email.

If you have questions or need to discuss payment terms, I'm happy to help.

Thanks, [YOUR_NAME]

Why This Works:

This level is friendly and helpful. You're reminding, not demanding. Most late payments are oversights, so a friendly reminder is often enough. Customers appreciate advance notice and helpful communication.

Level 3: Urgency (Overdue Warnings)

Purpose: Communicate urgency and request immediate payment.

Timing: 7-14 days overdue, 15-30 days overdue.

Message Tone: Firm, professional, direct.

Example:

Subject: Payment Reminder: Invoice #[INVOICE_NUMBER] Overdue

Hi [CUSTOMER_NAME],

Invoice #[INVOICE_NUMBER] for [AMOUNT] is now [X] days overdue (original due date: [DUE_DATE]).

Please arrange payment immediately or contact me to discuss payment arrangements.

Payment details: [PAYMENT_INFORMATION]

If payment has been sent, please forward confirmation.

Thanks, [YOUR_NAME]

Why This Works:

This level is firm but professional. You're stating facts (overdue) and requesting action (payment). The tone is direct but not aggressive. Customers understand the urgency and respond accordingly.

Level 4: Escalation (Final Warnings)

Purpose: Communicate consequences and final opportunity for resolution.

Timing: 30+ days overdue, after multiple reminders.

Message Tone: Formal, direct, consequence-focused.

Example:

Subject: Final Notice: Invoice #[INVOICE_NUMBER] - Action Required

[CUSTOMER_NAME],

Invoice #[INVOICE_NUMBER] for [AMOUNT] is now [X] days overdue (original due date: [DUE_DATE]). This is our final notice before we take further action.

Immediate Action Required:Please remit payment in full within 48 hours or contact me immediately to discuss payment arrangements.

Payment Information:[PAYMENT_DETAILS]

If payment is not received within 48 hours, we will be forced to take further action, which may include suspending services or engaging a collection agency.

I'm available at [PHONE_NUMBER] to discuss this matter.

Regards, [YOUR_NAME] [YOUR_TITLE]

Why This Works:

This level is formal and direct. You're communicating consequences (suspension, collection agency) while still offering a final opportunity for resolution. Customers understand the seriousness and respond accordingly.

Modern vs. Traditional Dunning: The Automation Advantage

Traditional Dunning (Manual):

• Sticky Notes: Reminders written on sticky notes
• Random Calls: Calls made when someone remembers
• Inconsistent: Different approaches for different customers
• Time-Consuming: Hours spent on manual reminders
• Error-Prone: Mistakes, missed reminders, forgotten follow-ups
• Relationship Damage: Personal reminders feel like nagging

Modern Dunning (Automated):

• Systematic Workflows: Reminders sent based on rules
• Consistent Timing: Same approach for similar situations
• Multi-Channel: Email, SMS, phone, customer portals
• Efficient: Automation handles routine reminders
• Accurate: No mistakes, no missed reminders
• Relationship-Preserving: Automated reminders feel like procedure

The Automation Advantage:

Consistency:

• Every customer gets the same treatment
• Reminders sent at the right time, every time
• No favoritism, no inconsistency

Efficiency:

• Automation handles routine reminders
• Team only intervenes for exceptions
• 80-90% reduction in manual work

Effectiveness:

• Right message at the right time
• Multi-channel communication
• Better response rates

Relationship Preservation:

• Automated reminders feel like procedure
• No personal nagging
• Team steps in only when helpful

Strategic Dunning: The CollectLean Approach

Strategic dunning uses automation to send the right message at the right time through the right channel. It's methodical, professional, and effective.

The Strategic Dunning Workflow:

Step 1: Invoice Delivery (Level 1)

• Send invoice immediately upon completion
• Provide clear payment information
• Make payment easy (multiple methods, online portal)

Step 2: Pre-Due Reminders (Level 2)

• Send reminder 3-5 days before due date
• Friendly, helpful tone
• Verify paperwork is correct

Step 3: Due Date Reminder (Level 2)

• Send reminder on due date
• Professional, clear messaging
• Provide payment options

Step 4: Early Overdue (Level 3)

• Send reminder 3 days overdue
• Firm but professional tone
• Request payment or communication

Step 5: Escalation (Level 4)

• Send reminder 7-14 days overdue
• Escalate to phone call if needed
• Formal, direct messaging

Step 6: Final Notice (Level 4)

• Send final notice 30+ days overdue
• Communicate consequences
• Offer final opportunity for resolution

The Automation:

Each step is automated:

• Triggers based on invoice status
• Sends appropriate message for the level
• Escalates automatically if no response
• Tracks all communication
• Team intervenes only for exceptions

Common Dunning Mistakes

Mistake 1: Starting Too Aggressive

Don't send Level 4 messages for Level 2 situations. Match the message to the situation.

Mistake 2: Inconsistent Timing

Don't send reminders randomly. Use consistent timing based on invoice status.

Mistake 3: Ignoring Customer Communication

If a customer responds, pause dunning and address their concern. Don't keep sending reminders.

Mistake 4: No Escalation

Don't send the same reminder repeatedly. Escalate appropriately as invoices age.

Mistake 5: Personal Attacks

Don't make dunning personal. Keep it professional and business-focused.

The Bottom Line

Dunning isn't harassment—it's the methodical process of communicating with customers about outstanding debt. When done right, it's professional, consistent, and effective.

Key Takeaways:

• Dunning is Procedure: It's business communication, not personal attack
• Levels Matter: Match the message to the situation (informational → urgency → escalation)
• Automation Helps: Modern dunning uses automation for consistency and efficiency
• Strategic Approach: Send the right message at the right time through the right channel
• Preserve Relationships: Automated dunning preserves relationships while ensuring payment

Modern dunning uses automation to send the right message at the right time. It's systematic, professional, and effective. It preserves relationships while ensuring payment.

Start with Level 1 (informational). Progress to Level 2 (nudging). Escalate to Level 3 (urgency) and Level 4 (escalation) as needed. Use automation for consistency and efficiency.

The result: faster payments, better relationships, improved cash flow.

Ready to implement strategic dunning? CollectLean automates dunning workflows, sending the right message at the right time through the right channel. Set up workflows once, and dunning runs automatically. Start a free 14-day trial and see how strategic dunning can improve your collections process.