What To Consider Before Choosing a Dunning Management System

Dunning management is the process of collecting overdue payments. It is especially crucial for subscription-based businesses that may experience missed payments for several reasons, such as expired cards, payment processing issues, lack of payment reminders, or even voluntary churn.

Dunning management might include dunning emails, push notifications, banners, or even phone calls reminding customers of upcoming or late payments. But it can be time-consuming and costly to manually review all your accounts to determine who needs to be contacted. That’s where a complete dunning management system comes into play.

A dunning management system can help you automate the tasks associated with collecting accounts receivable and reducing customer churn. Explore some key considerations you should make before choosing a dunning management system below.

7 Key Considerations for Choosing a Dunning Management System

An effective dunning management strategy includes communication, automation, customization, compliance, and analysis. You should be able to more easily communicate with your customers and collect payments, as well as get insights into customer payment behaviors that help you continue to improve your strategies. Use the seven tips below to help you choose the best dunning management system for your business.

1. Identify Challenges and Goals

Every company is trying to improve collections and cash flow as well as reduce churn. Which areas of your current dunning management efforts need support? Are you trying to achieve specific goals?

Our recommendation is to create more granular goals using data and insights. Collect information from customer reviews or even NPS to determine satisfaction, ease of navigation, or survey data layered into this. Are you getting feedback on pricing and other services that are a leading driver? The more granular the goal, the more quickly the impact on this metric can be observed and managed.  

The features of your chosen dunning management system should complement your business’s goals and help you overcome any challenges in collecting payments. It’s best to look for a system that uses features such as Account Updater and Network Tokens to prevent payment declines from happening in the first place.  

2. Align Platform Features With Your Communication Strategy

Your communication strategy may include different forms of dunning notices, such as email, push notifications, banners in product, or phone calls. Therefore, the dunning management system you choose should have communication features that align with your overall strategy. Many companies choose to use native communication tools in third-party billing applications while others will choose to receive events from customer billing to create personalized calls to action and test alternative customer journeys. In most cases, the size of the opportunity will determine the initial and long-term vendor strategy as it relates to existing infrastructure.  

It may help to answer the following questions:

• Does the system send automatic reminders and notices when payment issues arise?
• Can you set up workflows that appropriately escalate accounts for higher levels of dunning collections?
• Will you have access to various forms of communication that can be targeted toward specific customers or groups of customers?
• Is your declined population large enough to accurately test multiple customer journeys?  

Setting up a detailed communication strategy could be one of your best defense systems against payment failures.

3. Understand the Power of Automation for the Dunning Process

There is a legacy idea that engaging dormant customers will somehow “wake them up” and cause them to cancel and increase churn. In most cases this turns out not to be true; it ultimately re-engages them in your offering. Automated reminders can be sent ahead of time to remind customers that their payments are due. In addition, you can automate notices for customers whose payment methods are about to expire, or where the issuer does not participate in Account Updater. The customer can then update their credit cards and other billing information so that their payments never fail. Automated retries can help you recover revenue quickly if payment issues arise.

Ensure your work with a provider that actively monitors Network regulations. Networks now mandate advanced billing notice for annual recurring customers as well as trials and other offer types given the merchant MCC code. While some of this can seem onerous for the merchant, usually adhering to Network regulations and doing the right thing by customers has a positive overall impact on your business.

Many dunning management systems include a host of features that automate your dunning strategies. They may send automatic communications with ready-to-use templates that make it extremely easy to send reminders, invoices, claims documents, and more. Some automatically send invoices with multiple payment options available for convenience. Others may also have advanced features to track customer responses and email correspondences.

4. Define Key Metrics Needed To Track and Optimize Collection

Tracking key metrics can help you determine whether or not your dunning strategy is operating at peak performance. Some common key metrics might include recovery rates, failed vs. successful payments, and secondary metrics to track the effectiveness of various communication techniques.

The key metrics that you choose to track should correlate to the goals and challenges that your business is facing. That way, they can tell you if you need to tweak your dunning strategies. Your dunning management system should have analytics tools that allow you to track these metrics and make changes as needed.

We advise merchants to track granular metrics such as:

• Voluntary and involuntary churn rates for each Bank Identification Number (BIN)
• Churn rates for specific products, customer lifetimes, etc.
• Effective collection rate
• First-pass approval vs. decline recovery metrics

Each change made at a granular level will impact the total metrics. This also helps ensure you aren’t simply moving churn from involuntary to voluntary or inadvertently causing issues in other areas of your business.  

5. Evaluate the System’s Cost and Scalability

Consider your budget and how much you are willing to spend on your system. Many dunning management systems will have tiered pricing that increases with the number of customers or usage volume. While your business grows, it’s important to find a system that can handle the increasing volume of customers and still be cost-effective.

Take into account the cost of the system itself, as well as the time and cost of training employees or acquiring help to implement the system. If you anticipate needing access to frequent customer support or assistance with regular maintenance, you may have to pay more for the system.

It’s also important to understand if your vendor only supports their dunning journey or if you can also test outside their platform. Companies with high growth rates or that are constantly iterating their value proposition and customer interaction may require more flexibility to support their go-to-market strategy than companies with a more stable offering and customer base.  

6. Make Sure the Platform Is Compliant and Secure

Your business is subject to varying legal and compliance requirements based on business type, billing schedules, and locations.

Many businesses are subject to Payment Card Industry (PCI) compliance requirements and General Data Protection Regulation (GDPR) compliance requirements. PCI compliance includes technical and operational requirements to keep a customer’s payment card information safe, while GDPR compliance outlines how businesses can safely collect and store data. Complying with these regulations is crucial to keeping both your business and customers secure.

Numerous states have also passed their own data privacy laws, so you may have to comply with those regulations, depending on your business’s location.

7. Look for Segmentation and Personalization Capabilities

Your dunning management system should provide multiple ways to customize your dunning efforts. Look for features that allow you to personalize customer communications, segment your customer base into similar groups, and integrate apps that connect to other business operations.

Segmentation features will split your audience into groups based on payment behaviors and demographics so that you can customize their communications based on risk and preferences. For example, customers who make timely payments might receive a casual email reminder, while customers with unpaid invoices might receive more specific intervention messages.

Integrations allow you to build a more cohesive dunning strategy that functions effectively with other operations. Some dunning systems connect to billing platforms, customer relationship management (CRM) platforms, or accounting software.

Discover the Best Platform To Simplify Dunning and Payments

If you’re looking for a payment platform to improve your dunning strategies and payment success rates, Revolv3 can help. Unlike traditional payment gateways, Revolv3 uses a combination of machine learning and tokenization to connect directly with payment processors. This results in higher payment approvals, reducing the need for dunning interventions.

Contact Revolv3 today to learn more about our enterprise payment solutions.