Accounting and bookkeeping
Dunning
Dunning is the systematic process of communicating with customers to ensure the collection of accounts receivable, typically involving a series of increasingly urgent payment reminders for overdue invoices.
What is Dunning?
Dunning is the structured method businesses use to chase overdue payments from customers. When an invoice passes its due date without being paid, the dunning process begins. It usually involves sending a sequence of payment reminders, starting with a polite nudge and gradually escalating in urgency if the debt remains unpaid. As a business owner, you rely on timely payments to keep your operations running smoothly. Dunning helps you formalise how you handle late-paying clients, ensuring you do not lose track of outstanding invoices. The goal is to recover your money while maintaining a professional relationship with your customer. A well-planned dunning strategy often includes automated emails, formal letters, phone calls, and eventually, the application of late fees or referral to a collections agency if the customer refuses to pay.
How Dunning works
The dunning process follows a clear timeline that begins the moment an invoice becomes overdue. First, you identify which accounts have missed their payment deadlines using an aging report. You then send a gentle reminder, assuming the customer simply forgot. If the invoice remains unpaid after a few days, you send a second, more direct notice. As time passes, the communications become firmer. You might add late fees if your payment terms allow them. If emails and letters do not work, you typically make a phone call to discuss the issue directly. Finally, if all internal collection efforts fail, the process concludes by either writing off the amount as bad debt or handing the account over to a legal or debt collection professional.
- Generate an accounts receivable aging report to identify overdue invoices.
- Send a polite initial payment reminder shortly after the due date.
- Issue subsequent notices with firmer language and updated account balances.
- Apply late payment penalties or interest charges if applicable.
- Escalate to a phone call to resolve any disputes or payment issues.
- Transfer the unpaid account to a collections agency as a last resort.
Why it matters for your business
You should care about dunning because unpaid invoices directly threaten your working capital. Without a clear collection process, late payments can quickly accumulate and force your business into a cash flow crisis. A consistent dunning strategy trains your customers to respect your payment terms and reduces the likelihood of bad debts. By automating these reminders, you save valuable administrative time and avoid the awkwardness of manual follow-ups. Since Paper & Pen creates invoices, quotations and receipts, you can easily track which documents are overdue and trigger your collection steps before the debt becomes uncollectible.
See also
Questions
Common questions
What is a dunning letter?
How many dunning notices should I send?
Can I charge late fees during the dunning process?
Related terms
- Accounts receivable Accounts receivable represents the total amount of money owed to a business by its customers for goods or services that have been delivered but not yet paid for.
- Aging report An aging report is an accounting document that categorises a company's accounts receivable or payable based on the length of time an invoice has been outstanding.
- Bad debt Bad debt is a monetary amount owed to a business that is no longer recoverable because the customer is unable or unwilling to pay their outstanding invoice.
- Payment terms Payment terms are the specific conditions agreed upon between a seller and a buyer that dictate when and how an invoice must be settled.
- Write-off A write-off is an accounting action that reduces the recorded value of an asset to zero when it loses all its value or a customer fails to pay an outstanding invoice.
- Accounts payable Accounts payable is the total amount of short-term debt your business owes to suppliers and vendors for goods or services that you have received but have not yet paid for.