Recurring Billing

What is Dunning?

The process of handling failed payments and declined credit cards to recover lost revenue.
The word dunning had a very different shade in the pre-SaaS age. It used to be strongly associated with dues collection, and many companies employed persistent, intimidating procedures to demand repayment.
Sometimes called Delinquent User Notification—it was, in its mildest form, a gentle reminder. More often, it was a figurative rap on the knuckles or a dreaded ‘location visit’. Let’s take a quick look at what it has evolved into today and why it matters.

Modern Dunning Has a Lot to Do With Credit Cards and For Good Reason

With the advent of SaaS, dunning processes have turned into something vastly different. While Wikipedia still says dunning is ‘the process of methodically communicating with customers to ensure the collection of accounts receivable’, there’s so much more to it than that.
If you have recurring billing setup for a hundred customers, that’s ten transactions failing for common reasons like credit card expiry, blocked cards, network issues and credit card declines due to insufficient funds every billing cycle. Often customers don’t even notice these failures until their credit card statement comes in. And that's where Dunning comes into the picture. It identifies mystifying transaction failures when they happen and automatically alert customers with accurate, timely information.

What We Really Talk About When We Talk About Dunning

  • Dunning management is an automated process that lets you do things like:
  • Set up smart retries for failed payments
  • Send you reminders about outstanding dues from declined credit cards
  • Alert customers through professional emails that something’s gone bump in their last transaction
  • Request customer opt in so you can collect updated credit card information directly from credit card providers (a.k.a. account card updater)

Fighting Involuntary Churn to Recover Revenue

Involuntary churn happens when you lose customers because of payment failures. Even a 1% increase in churn can affect your overall revenue by 10% plus your MRR. And involuntary churn rates can make up a whopping 50% of your actual churn rate.
Several other benefits accrue from using a well-designed dunning system from a customer perspective. These factors aren’t always a part of the dunning process itself, but they do have a demonstrably positive effect on retention and are important to consider.
Improving Customer Experiences

Without graceful dunning procedures and dunning emails, your business is writing its own script for ‘How to Lose a Customer for No Reason’ because:
  • Identifying payment failures and solutions is now the customer’s problem, which hits retention rates hard
  • Without automated retries, the payment verification process may take days
  • Communication becomes strained because the customer (understandably) does not want to deal with this on a Wednesday afternoon at work
  • Suspicious credit card activity can alarm people and put your trustworthiness in question
An effective Dunning system introduces a vital layer of security, trust and professional friendliness into monetary conversations with the customer. A big chunk of payment failures are unavoidable, unintentional and involuntary. Good business mettle doesn’t demand that you prevent this, simply that you handle it well.
Pro Tip: What if the people using your product aren’t the ones paying for it?

When you send corporate users your billing emails, they’re generally forwarded to departments in charge of payments and with access to billing information. But the user still holds all the user information needed for logging into the system. The resulting coordination tangle can be a huge time suck. Dunning systems that employ a ‘one-click update’ remove the need for unnecessary coordination and let executive sponsors deal with payment failures easily.
Additional Reads
  • A shortlist of essential reading material encompassing top insider insights & pro perspectives on dunning management:
  • Tim Wu and Lesley Park talk about how a proactive approach to dunning management can reduce the risk of unintentional cancellations on the Chargebee blog. How to reduce churn with Payments: Dunning Management Revisited
  • “1 in 4 transactions that go through dunning are recovered.” See Chargebee’s data insights collected from a sample of over 5.36 million transactions from merchants across 45 countries and their customers spanning 79 countries. Dunning benchmarks for subscription businesses