When we talk about the quote to cash process in billing, we focus a lot on usage data mediation, ensuring every client receives an accurate, clear, and timely invoice. Moreover, we focus on compliant revenue recognition. But what happens after that invoice goes out the door and before revenue gets recorded? What occurs when collecting payments from customers?

This process of receiving payments from customers (and tracking down late payments as necessary) is called collections and dunning.

Collections and dunning are a critical piece of the billing process, and they aren't just about reminding customers to remit their payments. Instead, with a sophisticated billing system in place, collections and dunning are about proactively removing any frictions that could slow the payment process. We'll get into that in a moment, but first, let's start with the basics.

Basic Definition: What Are Collections & Dunning?

Collections and dunning go hand in hand, but each serves a slightly different purpose:

  • Collections is the process of systematically trying different ways to collect payments from clients if the default payment (such as the credit card stored on file or the regularly scheduled auto-draft) 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 on time.

Why are these processes so important? At their most basic, collections and dunning are critical to ensuring businesses get paid for the products and services they sell. As we’ve written before, revenue leakage is far too common, with 42 percent of companies leaving money on the table. And a significant portion of that leakage comes from failing to collect full payments. So, a robust collections and dunning system can stop that revenue leakage and help businesses collect payments smoothly, efficiently, and in full.

Not Just Punitive: Collections & Dunning As Proactive Processes

Yes, collections and dunning are about making sure late payments finally arrive. Still, they're also about preventing accidental churn by making it as easy as possible for customers to pay on time in the first place, which can happen in a variety of ways. For example:

  • Personalized subscription renewal notices
  • Reminders to update expired or outdated credit card information
  • Payment retry schedules that take effect in the event of a failed payment
  • Payment plans tailored to each customer’s needs and outstanding balance
  • Learn about more proactive collections and dunning tools in this recent blog post.

Of course, suppose all these friction-reduction measures fail and a client's bill becomes overdue. In that case, 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.

Streamlining Collections & Dunning Through Automation

As you can imagine, attempting to maintain a sophisticated collections and dunning system manually — complete with payment retries, payment plans, and customized renewal notices — is not sustainable. As companies grow, adding new customers and new services, more complicated billing models, and outdated collections and dunning systems are likely to cause more problems (and revenue leakage) than it solves.

Automating these processes, however, can make revenue collection a breeze.

Consider first, dunning plans. Communicating individually with each customer about their upcoming and past-due invoices is time-consuming and likely to lead to errors, missed collections, etc. But automating those plans allows businesses to set up workflows that create and send notifications based on each customer's needs and behaviors, whether they're premier customers, high-risk customers, or any other classification, and how far overdue their payments are. This way, finance teams can communicate quickly, accurately, and automatically with each customer in the manner that’s most likely to result in paid bills.

And that’s just one of the ways automated collections and dunning makes life easier for the team in charge of collecting payments. Catching and rerunning failed payments manually is a nearly impossible task, as credit cards can fail for various reasons, often through no fault of the client. But automated payment retries make it simple. Similarly, automated payment plans can be triggered immediately when invoices come due, allowing customers to set up recurring or manual payments via their preferred method — without manual intervention from the finance team.

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. We invite you to watch this video from our customer solutions director and peruse our collections and dunning page to learn more about these tools. If you like what you see, book a demo here, and one of our experts will be in touch to walk you through the Gotransverse platform and process.