Dunning For Dummies: Why Your Business Needs a Collections Solution

Written by Sean Brown on June 17, 2021

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Digital payment methods and automatic billing for subscriptions are incredible conveniences for shoppers and businesses alike. It’s easier than ever to sign up for a service or buy a product and opt-in to recurring fees for access or a regular parade of items to your door.

That lack of friction on the front-end can make things difficult when its time for customers to renew or update their payment information, however. Before long, business owners and staff may find themselves spending hours and days trying to connect with customers who have been active users but suddenly have inactive credit cards.

The solution for these problems is usually a dunning system. But before we get too far, let’s establish what dunning is.

Dunning Defined

Dunning is an old word that describes an even older process — getting your customers to pay what they owe for your products or services.

Collecting on debts has always been an issue in the business world, but startups and software-as-a-service (SaaS) companies are especially sensitive to payment collection concerns. 

For startups, effective dunning can be the difference-maker that keeps your doors open and lights on in a given month. And because SaaS organizations largely rely on subscriptions for revenue, it’s a good idea to backstop your billing process with a dunning solution to keep your balance sheet reliable.

4 Reasons to Invest in a Dunning Solution

Dunning is useful for lots of organizations, of course, not just SaaS and startups. Here are four reasons to invest in a dunning solution for your business:

1. Avoid Recurring Revenue Loss

Monthly recurring revenue (MRR) is the lifeblood of lots of companies, from SaaS to eCommerce to marketing agencies. And if you want to grow, you can’t just rely on a steady flow of new customers — you need to keep the customers you have.

A dunning solution can help with that by alerting you when a customer’s payment doesn’t process, retrying that payment method if necessary, and reaching out to the customer to revise their payment information, among other things. 

Retaining existing customers — and the steady flow of revenue they provide — is essential to long-term growth and sustainable success.

2. Reduce Involuntary Churn

Involuntary churn occurs when you lose customers or subscribers because their payment information expires and isn’t updated or followed up on. 

Most of these cancellations aren’t on purpose; you and your customer just failed to connect in time to keep the account active. One study found that more than one-third of involuntary churn is because of these payment failures.

A dunning system can be an effective solution to this problem. You can put automated rules and triggers in place that let the customer know that their information has expired and their account access will go away if it isn’t updated. 

It can also protect your company’s reputation, as customers won’t have unexpected interruptions to their service.

3. More Customer Interactions

Dunning does more than just maintain payments and subscriptions — it provides another opportunity to connect with your customers and build a stronger relationship. 

If you want to maintain customer loyalty and increase lifetime value, you’ll need to make every effort to connect in the case of a failed payment or expired information. But if your first message regarding collections is an urgent ‘account suspended’ email, you’re likely to create a bad impression with your users. And even if they do renew right away, they’re less likely to stay with you long-term after that.

4. Save Time with Automated Solutions

Let’s get real for a second. Chasing down payment information and sending messages to collect money you’re owed isn’t much fun. And it’s important to strike the right tone with your customers so they don’t feel like they’re being harassed or shamed for lack of payment.

That’s another area where automated dunning can help. You can take the time to craft messages that empathize with your customers and set them up to go out automatically instead of agonizing over personalized messages to each person. And if users have questions or need one-on-one assistance, you’ve already established a pleasant and professional baseline to continue the conversation.

In summary, if you’re losing subscribers to expiring payment information or struggling to keep up with customers who aren’t paying their bills, the right collections solution can work wonders for your business.

Contact GO VC now to discuss more ways we can help your business grow.