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How do dunning letters fit into your collection strategy?

On Behalf of | Jan 30, 2024 | BUSINESS & COMMERCIAL LAW - Business & Commercial Law

If you are a business owner, you know that customers who are regularly late in paying their bills or who don’t pay the full amount owed can be a constant source of irritation and anxiety. Aside from not having the money you’re relying on when you need it to cover your own bills and other expenses, you have to devote time, resources and manpower needed for other responsibilities to chasing these payments.

Handing over an account to a third party to collect is a last resort that you’d likely rather avoid. Thankfully, there are steps you can take to try to avoid that.

You may never have heard the term “dunning letter.” You’ve probably been using them without realizing it. The name comes from the word “dun,” which is a centuries-old word for “demanding payment.” Today, dunning letters are typically in the form of overdue notices and collection letters. When utilizing this strategy, there are things you can do to make your approach more effective.

Automated billing and overdue notices

Fortunately, it’s fairly easy to automate your billing and collections processes. You probably already have a system that automatically sends out an overdue notice at 30 days (or some other specified time) after payment is due or that at least gives you opportunity to send out a notice if you choose.

An automated system can also be programmed to set up subsequent overdue notices – for example, every 30 days until payment is received or you turn the account over for collection (which should be a predetermined time). It’s crucial to make sure these subsequent notices don’t look or sound like the first one. Whether you’re using mail, email or text, the notices need to become increasingly urgent and give people a phone number to call and discuss their payments. You may want to start adding late fees after a certain point.

Consistency among your customers is key

Customers have different reasons for not making full and timely payments. They may be experiencing a cash flow issue of their own, be highly disorganized or just want to push out their payments for as long as they can. While you may be inclined to give long-time and/or struggling customers more leeway or the ability to negotiate down their debt than others, you have to be careful with this to avoid accusations of discrimination – and avoid being taken advantage of. Seeking legal guidance in crafting your dunning letters can be helpful in this regard.