‍

Late payments can take a big hit on your bottom line. In fact, subscription companies lose 9% of their annual revenue just from failed payments. But there's a simple tool that can help you get paid faster — dunning letters.

These formal payment reminders do more than chase down overdue invoices. They're your key to maintaining cash flow while keeping customer relationships strong.

When done right, dunning letters:

• Make payment terms crystal clear
• Speed up your collections process
• Give you a solid paper trail for every payment attempt

And the good news? Companies that actively track and follow up on failed payments see dramatically better recovery rates.

Let's look at how you can create dunning letters that get results. We'll cover strategies to improve your collections process and help your business maintain healthy cash flow. Getting paid doesn't have to be a struggle.

‍

Understanding Dunning Letters

When your customers don't pay on time, you need a way to follow up that's both firm and professional. That's where dunning letters come in. These formal payment requests are different from your usual friendly reminders — they help you collect what you're owed while keeping your business relationships intact.

What Makes Dunning Letters Different?

A good dunning letter does three things really well:

• Keeps things professional and formal — you want to show you mean business
• Includes all the important details (amount, due date, invoice numbers)
• Makes the next steps clear for your customer

Regular payment reminders are like a gentle tap on the shoulder. But when a payment is seriously late, you need something stronger. Dunning letters signal that it's time for action. They spell out what's owed and why immediate payment matters.

When you handle these situations well, you can actually build trust with your customers. They'll appreciate your clear communication and professional approach.

Think of dunning letters as your collections strategy's secret weapon. They give you a structured way to handle late payments without burning bridges. And that's good for everyone's bottom line.

‍

Understanding the Dunning Process

Getting paid on time keeps your business running smoothly. But sometimes customers need a little reminder — that's what the dunning process is all about. It's a step-by-step approach to collecting payments that helps you stay professional while getting results.

How the Process Works:

The dunning process follows a simple timeline:

• 30 Days Past Due: Start with a friendly heads-up. A quick note to say, "Hey, we noticed this payment is a bit late." Sometimes that's all it takes.
• 45 Days Past Due: Time to be more direct. Send a clear message about the overdue payment and what you've done to reach out so far. You want to show you're paying attention.
• 60 Days Past Due: This is your final notice. Be firm and specific about what happens next — like late fees or other consequences. Your customer needs to know it's time for action.

Why Timing Matters:

Quick follow-up makes a big difference in getting paid. When you stay on top of late payments right away, you're more likely to get a response. It's like catching a small problem before it turns into a big one.

Consistent communication helps too. Your customers will know what to expect, and you'll have a clear record of all your attempts to collect payment. And that's better for everyone — you get paid faster, and your customers stay in good standing.

‍

Types of Dunning Letters

The way you write your dunning letters can make a real difference in how quickly you get paid. Let's look at three different letters you can send, each getting a bit more serious as time goes on.

‍First Contact: The Friendly Reminder

Your first letter should keep things light and helpful. Here's how it might look:

Following Up: Time to Be Clear

If you don't hear back, your second letter should be more direct:

Last Call: The Final Notice

Your last letter needs to be firm and specific:

Subject: Final Notice – Invoice #12345 Payment Required

Each letter serves a different purpose, but they all aim to get you paid while keeping your customer relationships strong. The key is staying professional while being clear about what you need. And timing matters — send each letter at the right moment, and you'll have better results.

‍

Why Are Dunning Letters Important?

Here's a sobering fact: 82% of businesses fail due to cash flow problems. That's why dunning letters are so important for your business health — they help you get paid on time and keep your cash flowing.

Keeping Your Cash Moving

When customers pay late, it affects everything from daily operations to growth plans. Accounts receivable might look great on paper, but you can't pay bills with promises. Dunning letters help turn those promises into actual cash in your account.

And timing matters. The faster you follow up on late payments, the more likely you are to get paid. Good dunning letters keep money moving through your business, so you can pay your own bills and invest in growth.

Building Better Customer Relationships

You might worry that asking for money will upset your customers. But here's the thing — most customers actually appreciate clear communication about their accounts. When you write good dunning letters, you're showing that you're organized and professional.

It's a chance to talk with your customers and fix any problems they might have with payment. Sometimes they just forgot, or maybe there's a small issue you can solve together. These conversations can make your relationship stronger.

The key is staying professional and keeping the lines of communication open. When you handle payment discussions well, you're protecting your business health and your customer relationships at the same time.

‍

Best Practices for Writing Effective Dunning Letters

The way you write your dunning letters can make a big difference in how fast you get paid. Let's look at how to write letters that get results while keeping your customer relationships strong.

Finding the Right Tone

Your tone should change as the invoice gets older. Here's what works well at each stage:

30 Days Past Due: Keep it friendly and helpful. "We value working with you and wanted to check in about the recent invoice."

45 Days Past Due: Be more direct, but stay professional. "Your account is now overdue. Could you take a look at this today?"

60 Days Past Due: Be firm and clear about next steps. "We need your immediate attention on this overdue payment to avoid any account issues."

Making Payment Easy

The easier you make it to pay, the faster you'll get your money. Your letters should always include:

Clear Payment Options: Tell them exactly how they can pay — credit card, bank transfer, online portal. The more options, the better.

Simple Deadlines: Give them a specific date. "Please pay by Friday, January 20" works better than "as soon as possible."

Easy Contact Info: Include a direct phone number and email. Sometimes they just need to ask a quick question to move forward with payment.

When you write clear letters with the right tone, you'll collect more payments while keeping your customers happy. And that's good for everyone.

‍

Implementing Technology in the Dunning Process

Modern technology makes collecting payments a whole lot easier. With the right automation tools, you can spend less time chasing payments and more time growing your business.

Smarter Payment Tracking

Good AR software gives you a clear view of what's happening with your invoices. You'll see who's paid, who's late, and who needs a reminder — all in real time. And because the system tracks everything automatically, you won't miss any payments or waste time on manual updates.

How AI Makes Collections Better?

AI takes dunning to a different level. Here's what modern AI tools can do for you:

Predict Late Payments: The software learns from payment patterns. It can tell you which customers might pay late before it happens, so you can reach out early.

Send Smart Reminders: AI figures out the best time to send payment reminders. It adapts to how each customer responds, so you're reaching out at the right moment.

Match Payments Automatically: When payments come in, AI matches them to the right invoices. No more spending hours reconciling payments — it happens automatically.

Getting Started with AI

Want to see how this works? Fazeshift's platform brings all these features together in one place. Book a 30-minute demo with our team — we’ll show you how AI can speed up your collections and help you get paid faster.

‍

Legal Aspects Related to Dunning Letters

‍

When you're trying to collect payments, staying on the right side of the law is crucial. The rules around debt collection are strict, and breaking them can cost you — both in fines and reputation.

Federal Laws You Should Know

The Fair Debt Collection Practices Act (FDCPA) sets the rules for how you can communicate with customers about debt. It's a federal law that applies across the US, and it's serious business. Breaking these rules can lead to expensive legal problems.

State Laws Matter Too

Different states have their own rules about debt collection. For example, some states have specific requirements about what you can say in collection letters or how often you can contact customers. It's worth checking your local regulations to avoid any issues.

What Can Go Wrong

If you don't follow these laws, two big things can happen:

Legal Troubles: Customers can sue if you don't follow the rules. These lawsuits can be expensive, and they take time away from running your business.

Brand Damage: Getting called out for aggressive collection practices can hurt your company's reputation. And that's something that's hard to fix.

Playing It Safe

The good news? When you understand the rules, it's not too hard to stay compliant. Keep your dunning letters professional, stick to the facts, and always double-check your state's requirements. This way, you can collect what you're owed while keeping your business protected.

‍

Enhancing Customer Experience During Collections

Collecting payments doesn't have to damage your customer relationships. In fact, it can be a chance to show your customers you care.

Five Ways to Keep Customers Happy While Getting Paid

1. Make It Personal: Look at your customer's history and habits. A message that feels personal will get better results than a generic one. Something as simple as mentioning their usual payment method can make a difference.
2. Show You Care: Sometimes good customers run into tough situations. A little understanding goes a long way. Try "We know cash flow can be tight sometimes. How can we help?" instead of demanding immediate payment.
3. Keep Payment Simple: Give your customers several ways to pay. The easier you make it, the faster you'll get paid. Make sure to highlight their preferred payment method first.
4. Get Ahead of Issues: Don't wait until payments are late. A friendly reminder a few days before the due date can prevent problems. Your customers will appreciate the heads-up.
5. Ask for Feedback: Your customers might have great ideas about making the payment process better. When they share feedback, act on it. They'll notice that you listened.

When you handle collections well, you do more than just get paid — you build stronger customer relationships. Customers stick with companies that treat them well, even when discussing overdue payments. And that's good for your bottom line.

‍

Key Takeaways: Making Dunning Letters Work for You

Late payments can really slow down your business. But with the right approach to dunning letters, you can speed up collections while building stronger customer relationships. Here's what matters most:

• Start friendly, then get more direct as needed
• Keep your timing consistent and your messages clear
• Stay within legal bounds (it's easier than you might think)
• Use technology to take the manual work off your plate
• Make the payment process easy for your customers

Managing accounts receivable shouldn't eat up your team's time. And if you're running a mid-sized or enterprise business with complex billing needs, automation can make a huge difference.

Want to see how AI can transform your collections process? Our team at Fazeshift would love to show you. We'll walk you through how automation handles everything from payment tracking to smart reminders — and you'll see exactly how it fits into your existing workflow. Book a demo with us, and let's get your AR process running smoothly.