Back to Billing Basics: Collections & Dunning

So far in our “Back to Billing Basics” series, we’ve covered revenue recognition, revenue leakage, mediation, and usage-based billing. Our goal with this series is to take a step back from the nitty gritty details of agile billing and instead share high-level overviews of some of its key elements. Today, we’ll look at collections and dunning — the processes involved in actually receiving payments from clients once invoices have gone out.

Let’s start with basic definitions.

• Collections is the process of systematically trying different ways to collect payments from clients if the default payment doesn’t work.
• Dunning is the process — from initial reminders to overdue notices and beyond — businesses use to remind and encourage customers to make their payments.

Why Are Collections & Dunning Important?

At the most basic reason, the collections and dunning process is critical to ensure businesses actually get paid for the products sold or services rendered. As we know, revenue leakage is incredibly common — with MGI research showing that 42 percent of companies inadvertently leave money on the table, under-billing customers — or failing to collect — for the products and services they’ve used, for example. A robust collections and dunning system can stop that revenue leakage and help businesses collect payments smoothly, efficiently, and in full.

The collections and dunning process is about more than just tapping customers on the shoulder to remind them to pay their bills. Rather, a sophisticated process can also prevent involuntary customer churn by removing the friction from the payment process in the first place. This can include personalized subscription renewal notices, reminders to update expired or outdated credit card information, and payment retry schedules to try to prevent failed payments before they become a problem. Of course, if all these friction-reduction measures fail and a client’s bill becomes overdue, then the dunning and payment plans can help, escalating from gentle payment reminders to late fee notifications to service suspension warnings (and actual service suspension) until payment is received.

The Power of Automated Collections & Dunning

As with most aspects of billing, attempting to maintain a sophisticated collections and dunning system manually is a tall order. While it may work in the early days, when the client list is small and transaction volumes are low, it becomes impossible to juggle communication and collection activities as a business grows, adding new customers, more purchases, and more complicated billing models. While manual or outdated systems will inevitably lead to more and more revenue leakage and churn, automating the processes can make revenue collection a breeze. Here are three examples:

1. Automated Dunning Plans. While communicating manually with each customer about upcoming or past-due invoices is time-consuming at best, automated dunning plans allow users to configure specific steps to create and send notifications based on the number of days an invoice is past due. These plans can be tailored based on each customer’s needs and behaviors, whether they’re premier customers, high risk customers, or any other classification. That way, you can communicate (easily and automatically) with each customer in the manner that’s most likely to result in paid bills.

1. Payment Plans. With an automated collections and dunning system, overdue invoices can also trigger payment plans, giving customers the opportunity to set up automated payments via credit card or bank draft, or to make payments manually at their convenience. The automated system collaborates with dunning notifications to ensure customers are only receiving communications about upcoming payment plan milestones — and not receiving overdue notices while they’re working to pay off their debts.
2. Automated Payment Retries. Finally, catching and rerunning failed payments manually is a nearly impossible task, as credit cards can fail for a variety of reasons, often through no fault of the client. To minimize lost revenue, a sophisticated collections and dunning system includes automated payment retries that businesses can customize for different accounts, specifying how many retries to attempt, how many days to wait between retries, and which payment processor failure codes should be considered for an automated retry.

Collections and dunning are a critical part of the billing process, and the right tools can make it easy to streamline the process and minimize lost revenue. At Gotransverse, we pride ourselves on a suite of collections and dunning tools that make it easy to identify and collect any outstanding, overdue payments. To learn more about these tools, we invite you to watch this video from our customer solutions director. If you like what you see, request a demo, and one of our experts will be in touch to walk you through the Gotransverse platform and process.