What Is Dunning & Why Is It Important to SaaS Subscription Businesses?

For subscription-based businesses, loyal customers who consistently pay their bills are the life’s blood of their operations. Without those loyal clients, your company simply won’t produce reliable revenues, and profitability will be difficult to come by.

Then again, customer loyalty isn’t something that only the customer controls. As a subscription-based business owner, you’re in control of a large part of customer loyalty as well. Ultimately, it’s your job to create an environment in which your customers want to be loyal to your brand.

While that process includes proper marketing, attention to product satisfaction, and relationships, it also includes gentle reminders when bills are due and professionalism in the collection process. That’s where dunning comes in — a process that’s critical for SaaS subscription businesses. But what is dunning? Keep reading for an overview.

What Does Dunning Mean?

Dunning is a term used to describe the process of collecting payments that are due to your company. Dunning is commonly used interchangeably with the terms “retry/recycle.” However, that’s not exactly what dunning is. Here, we are defining dunning as the billing, retry, and recycle journey along with various points of customer communication.

That process is designed to meet a few important needs for your business and its customers, including:

• Customer Information: Part of the dunning process is professionally informing your customers of when their payments are due, when their payment methods are expiring, when they’ve missed payments, and more.
• Collecting Money Due to Your Company: This includes giving your customers a seamless way to make timely payments to your company.
• Taking Action on Past-Due Accounts:  Finally, dunning is the process of taking action when accounts are past due. For example, you may send an email when a payment method is declined and a few days later. After a week, you may decide to limit access to your services and more. This journey would include the ability to edit the payment data and how the product/service access changes while an account is delinquent. Any process involved in collecting past-due funds is part of a dunning procedure.

4 Dunning Strategies To Collect Accounts Receivable

The dunning process is centered around your accounts receivables and the collection of those monies that are due to your company. But, collecting money can be an uncomfortable proposition. So how exactly do you handle dunning management in a professional manner?

Here are four strategies to collect your accounts receivable:  

1. Dunning Emails for Upcoming Payments

One thing that can be a recipe for disaster is charging for your services without notice. After all, if your customer forgot to budget for your services, and you bill them without notice, you could overdraw their account.  

According to a 2022 SSON survey, 35% of businesses identified communication quality as a primary barrier to collecting customer payments. This is likely due to the fact that many will try to obfuscate cancellation or downsells and make it hard for a customer to navigate. More often than not, this only leads to chargebacks, refunds, and negative reviews. Customers who are free to move about your ecosystem will tend to re-engage with it.

Dunning emails are designed to do just that. They provide a gentle reminder that an automatic charge for your service will be hitting their accounts. These emails should explain what the charge is for, how much the charge will be, and when the charge will take place.

While sending these emails can prepare your customers for the upcoming charge to their accounts, failing to do so may lead to upset customers, chargebacks on your merchant account, and a higher-than-necessary customer churn rate.

2. Updates for Credit Card Details

In the vast majority of cases, your customers will pay you by putting a credit card on file. Though credit cards provide a convenient way to pay and manage subscription charges, they also expire. And when they do, your customers may forget to update their payment information with you and other service providers they use.

So, it’s important to send dunning messages before credit cards expire.  On average, an established business will have ~20% of recurring subscription payment methods expired either because the bank does not participate in Account Updater, or the customer has not updated their card. If your customer’s credit card expires in December of this year, you may want to send an email at some point in November to remind your customer to update their payment information.  It’s always good practice to combine customer engagement with legacy batch and real-time Account Updater. The best billing models will layer in Network Tokens to cut down lifecycle issues with payment updates.  

3. Automatic Retry of Failed Payments

Payment failures will happen from time to time, and it’s up to you to collect the overdue payments when that happens. The dunning process helps with that as well. That’s especially the case when you take advantage of Revolv3’s recycle automation.

One of the first steps in collecting overdue payments as a result of payment failures is the automatic retry of those failed payments, either in real-time or as part of an AI-based retry strategy with dynamic routing. This process commonly works because there are various reasons a charge might decline, many of which have nothing to do with your company, and may resolve themselves over time such as ‘Insufficient Funds’ declines.

Why Is Dunning Critical for SaaS Subscription Businesses?

The dunning collection process is critical for any business, especially a software-as-a-service subscription business. Some of the biggest ways dunning can help you in your company include:

It Improves the Customer Experience

As a SaaS subscription business, you rely on your customer relationships and the ability to provide a positive customer experience. If you fail to build a relationship with your customers or your customer satisfaction dwindles for any reason, you could experience lulls in revenue and a lack of profitability.

Although dunning may seem like something that would be more of an annoyance to customers, it’s actually an important part of providing a satisfying customer experience.

After all, your customers want to know when you’re going to charge them and how much you plan on charging for your services before you do. And they’ll likely appreciate those gentle reminders. Moreover, they may be unaware of coming credit card expirations, and a dunning reminder may help them avoid an annoying lapse in your services.

Though some aspects of the dunning collection process are uncomfortable, the process as a whole leads to a better experience for all involved.

It Helps Recapture Lost Revenue

If you fail to take part in the dunning process, there’s a high likelihood that you’re leaving money on the table. Between 10% and 25% of recurring transactions typically result in declines. Without the dunning process, you wouldn’t email those customers to inform them of the decline or automatically retry the charge.

Instead, you would simply lose the customers, resulting in a higher customer churn rate.

But if you take advantage of the dunning process, you have a higher probability of payment collection on those accounts that are past due. And those outstanding payments can make a meaningful difference in your revenue.

It Allows for Better Customer Retention

As mentioned above, if you do nothing when credit card payments fail, you’re only contributing to your customer churn — and doing so at a rate of around 10% to 25% each time recurring billing takes place. You’re also adding to that churn if you don’t ask your customers to update their information when you have expired cards on file.

All of that additional customer churn can take a toll on your customer retention rates.

However, dunning can help you recapture lost revenues, and in doing so, recapture potentially lost customers. In turn, dunning has the potential to improve your customer retention rates significantly.

It Improves SaaS Business Cash Flow

As a software-as-a-service business, cash flow is key. After all, you likely have to manage significant expenses in the operation of your business, and you need a steady inflow of cash to do so. The bottom line is dunning helps bring in payments from customers, helping to maintain the steady inflow of cash you need. When you receive your payments on time, you can reliably account for the cost of goods and other business expenses you rely on those payments to cover.  

Automate Your Dunning and Billing Process With Revolv3

By employing dunning, you can maintain your customer base in terms of revenue and customer satisfaction. To help you do so, give the Revolv3 payments platform a try. Revolv3 simplifies the dunning process by offering end-to-end automation. You’ll never have to manually send a payment reminder, an expired card notification, or a late payment notice again. But that’s not the only reason you should give Revolv3 a shot.

Revolv3 gives you tools to automate much of the payment management process, in addition to dynamic routing and other state-of-the-art technologies to boost your approval rates and reduce your customer churn. Plus, you’ll never be charged for a failed payment. You'll also have the peace of mind that as your company grows, Revolv3’s services scale with it. Schedule your Revolv3 demo to find out how the platform can help your company.