Dunning is a 17th-century term used to describe the process of businesses communicating with customers in a bid of collecting outstanding money owed for products or services. While the term has existed for ages, businesses around the world are still having issues in collecting debts.
In fact, TUC revealed that household debt is continuing to hit new record highs, while a recent report from Statista shows the average debt per adult exceeds $100,000 in some European countries.
Without effective dunning processes in place and a recession looming following the COVID-19 pandemic, minimising accounts receivables and increasing cash flow is of paramount importance.
To shed some light on this, here are some common ineffective dunning strategies your business must avoid and practical solutions to modernise them.
One of the biggest problems with dunning lies in the collection management process. For years, debt collection has been built on a reputation of being cold and inflexible.
For a generation accustomed to streamlining, efficiency and practicality, a lot of business dunning strategies are failing to meet the ever-changing needs of the 21st century.
Take the COVID-19 pandemic for example. Millions of businesses across the world have faced significant disruptions, leaving even more employees out of pocket. This should act as a wakeup call on how to handle debt collection.
Granted, you want to drive your average days sales outstanding (DSO) down and settle accounts receivables quicker, but you don’t want to tarnish your relationship with customers and hamper future business together.
Some prime examples of being too inflexible include:
Dunning process best practices consist of being adaptable to a situation and creating bespoke solutions. Payment holidays, payment plans or early payment incentives as nudges are forward-thinking ways of delivering a positive experience in connection with a negative situation.
Debt collection is about listening as well as enforcing. In the past, there have been horror stories where the debt collectors used the local sheriff’s department as the caller ID to harass and threaten customers.
Whether you’re sending an email or calling, the way you come across shouldn’t get to a point where the customer feels scared, angry or anxious, triggering fight or flight. The language and tone of communications during each stage of the collection management cycle needs to reflect customer behaviours and be empathetic/flexible to suit every situation.
Remember, no customer is the same. Everyone will have specific needs and demands. From a holistic perspective, applying artificial intelligence will enable you to establish common behaviours and use this knowledge to address the general tone of all your communications. This is particularly important if you’re struggling to make contact with a customer via the phone.
As we covered before in our guide to improving your DSO, you must use softer language and remain approachable, while remembering to clearly reiterate the terms.
Be willing to adapt the language you use to suit certain circumstances without compromising your authority. Customers are more likely to settle an outstanding payment if your business is helpful and serious at the same time.
When it comes to enhancing your dunning processes, persistence doesn’t always pay off. Bombarding your customers with calls, letters and emails every day isn’t going to encourage them to settle past-due accounts.
This also includes following and approaching customers on social media. Outing them on popular platforms like LinkedIn, Facebook or Twitter will only add oil to the fire and potentially damage your business’ reputation as a credible and professional provider.
Instead, you need to follow a structure. Here’s an example:
If a payment hasn’t been made after these reminders, then legal action should be taken – as detailed in your communications. Creating a structured dunning process like this will help customers recognise the structured nature of your business and make them more inclined to avoid payment evasion.
Nowadays, customers don’t have the time or patience to be put on hold on the phone during working hours to speak to your debt collection team. Similarly, direct mail may cut through the noise often associated with email marketing, but it doesn’t make the process any easier for customers.
According to VCC Live, 50% of customers prefer self-service and more than 20% like to resolve their debt out of hours. In other words, the communication methods aren’t necessarily obsolete, it’s the call to actions that are. If you’re currently asking customers to give you a call, reply to an email or send a letter back, you’re creating a process out of a process.
In the same way job boards have introduced ‘One-click apply’ functions on their job adverts, dunning strategies must implement a more streamlined way of paying and adhere to the world’s growing self-service demands.
This includes setting up secure payment web pages or apps and accepting credit cards 24 hours a day, seven days a week, which the receeve debt collection and management platform does. The dunning process must offer customers the flexibility to serve themselves on their own terms.
Another mistake a lot of businesses make with their dunning strategies is failing to communicate with customers using multiple touchpoints.
Sending out several letters or calling relentlessly won’t always work. As mentioned earlier, people are busy at work during the day and will often ignore unknown callers or forget about a letter that arrived earlier in the day. Emails sent at perfect times in the day can give customers the nudge they need when they’re not buried with work or trying to put the kids to bed.
Research highlighted by optinmonster states that the best time to send an email is Tuesday or Wednesday between 10am and 2pm. However, it’s worth running split tests and seeing what times work best for your business.
The significance of smartphone ownership and usage is overlooked by a lot of decision makers too. As of 2020, over 3.5 billion people have a smartphone and check them every 12 minutes of the waking day on average.
This presents a real opportunity to businesses who choose to follow up emails and letters with a timely push notification or SMS reminder with a link to a payment page. Especially when you know that there’s a 98% chance of your SMS being read by the recipient.
The key is to create a journey consisting of communication via multiple channels based on customer behaviours. Get this right and you’ll have a dunning solution tailored to your customers, which results in quicker settling of accounts receivables and untarnished client-customer relations.
Calling customers several times a day and sending big quantities of messages every week is exhausting. Conducting repetitive tasks, often associated with retrieving accounts receivables, can lead to burnout and long-term depression.
In turn, this presents a whole host of further issues, including presenteeism, employee mental health problems and a drop in quality of your dunning processes. Your team will start to resent the job they do and fail to use the tone required to improve payment speeds and maintain relationships.
Signs of employee burnout include:
Automating parts of the debt collection journey like email and SMS correspondence can address these issues. By minimising the workload of your debt collection team, they’ll have extra time to focus on the customer support aspect of the process and feel like they’re doing something more worthwhile.
In particular, they’ll be able to focus on the elements required at the beginning of the transaction. For instance, conducting further credit checks and asking for valuable collateral to reduce the risk of the customer missing payments further down the line.
If you want to optimise your dunning process, it’s imperative that you look at the modern approaches on offer. Things have moved on in recent years. Artificial intelligence is being used to send automated messages to customers and analyse trends to successfully identify behavioural patterns. The world we live in is fast-paced, frantic and often stressful. Being hounded by a debt collector on the phone multiple times a day is counter-productive and instantly eradicates any brand loyalty.
While dunning might be an old fashioned term, it doesn’t mean your business has to live in the past. It’s time to think and act differently. With the right approach in place, we might just alter the negative perception of debt collection altogether.
We can help you navigate a changing situation. Using artificial intelligence our debt collection and management software identifies and applies the latest findings in behavioural science and combines this information with the cutting-edge automation methods to send optimised messaging to your customers.
As a result, businesses are able to effectively communicate with their customers in the right way and at the right time. To find out more about how our debt collection and management software can optimise dunning processes and how we can help you, schedule a demo today.
The payments industry has undergone a radical transformation over the past few years, thanks to the introduction of digital wallets, peer-to-peer payments online, and of course, buy now pay later (BNP...
The COVID-19 pandemic has been hard on everybody—including financial institutions. Widespread financial instability resulted in job losses and furloughs, leaving millions of people unable to pay the...
The financial impact of the COVID-19 pandemic has yet to be fully felt. Government subsidies have by and large propped up those that are struggling financially, whether individuals or businesses. But ...