An Essential Guide to Write an Effective Dunning Letter in 2021

By the term dunning letter we understand that a polite notification or a gentle reminder sent to the customer stating that there is an overdue pending with account receivable for the sender. The initial letters of the series that are received by the customer should always maintain a polite time because the client might have just overlooked or forgot to do the payment and they can do the same now to enjoy the services in offer.

Why is it called a dunning letter?

The root of this word comes from the 17th century verb dun which means that a demand payment is made of debt. Dunning letters are sent to the clients by following a constant progression which starts from a gentle reminder and later on the tone gets strict in demand of the payment if the client isn’t responding to any of the previous payment messages.

format of dunning letter

Format of dunning letter

There are separate dunning letters available which are written dedicatedly after the passage of certain days to the customer. It starts from day 30, and then each successive letter comes in the follow up at day 60, day 90, and past day 120. The tone will be changed with each letter so that the customer will be able to understand the message you want to deliver and how serious the matter is.

When you write a dunning later post 30 days of overdue payment, you can keep your tone much relaxed. The reason is that there are high chances your client might not have received the invoice so far or the payment just skipped their mind. This is a very important stage in your AR dunning process.

Now to make sure they have received the first letter of yours, you can take a follow up with them either by mail or a phone call. If the reason for non-payment comes out to be the missing invoice, you can settle the matter over the call only.

Now after 60 days of non-payment past due, you write a letter again to the customer, showing concern and asking for the reason for it.

Once the number hit 90 days past due, you can make a shift in your tone while writing a formal collection process letter. Make sure you are including a reminder that says the collection process will commence soon if the payment is not made on time.

After 120 days, you can write a dunning letter where you can be more upfront with the customer mentioning that serious actions will be soon taken and then you can proceed with the same as well.

Types of dunning letter

There are various physical forms of dunning letters available. It starts from a normal letter which is sent by regular or registered mail, or overnight speed transaction because they want to deliver their message as soon as possible to receive the payment in a short period. However, a dunning letter can also be sent to the clients as a fax, e-mail, or the most convenient option would be a simple text message. But these are kept as the last resort since even in this digital age, sending a dunning letter in a more traditional paper-based method is considered to be more effective than any other and you have to maintain this in your accounts receivable collections.

Nowadays, technology has become very advance and you can generate all the dunning letters directly from your computer only without the need for interaction from a human at all. Here the system is configured in such a manner that it can use a pre-set text once the overdue of the payment occurs and it also keeps a follow-up of the same for the coming days.

This way the next dunning letter will be produced by using a different tone and wording since the due date has become longer now without receiving the payment. Another much-used method taken into consideration by various organizations is getting in touch with the third party who will create and issue dunning letters. They make sure that all the government rules are kept in mind while writing the letter and at no point, it should include an excessive strident tone.

writing business letter

Stages of dunning letter

1. First reminder

The first letter is sent to the client which includes a gentle reminder regarding the missed payment and they should do it soon. This is followed up by a call or text where you will be showing your concern regarding the reason for late payment and provide them other options of payment if it is feasible for them and you. Along with this, make sure you are reminding them about the penalties they could face from delayed payments.

2. A Second reminder or follow-up letter

Once the past due date exceeds 60 days, you can see that the probability of a successful payment is very less now as indicated by the ar automation tools as well. With this letter, you can talk about the problem they can face from the delay in the payment, and promote them to maintain constant communication or let you know the root of the delay.

3. A Third reminder or follow-up letter

Now that the past due date has exceeded 90 or 120 days, you can be assured that there will be no payment from them whatsoever, and you can get more strict with your approach now to make the payment urgent. Here you can allow them a short period of payment along with the actions they could face in case they fail to do so.

4. Final letter before action

Now that you have tried your best even after 120 days of the past due date, it is time to bring the action into the play. This last letter would be more of an informative piece where you will provide them one last chance to clear the record. Give them a gentle reminder of all the previous reminders and their failed approach to do the payment. Make them aware of the actions you will take after a certain date, without losing the professionalism in your tone. Please feel free to contact team Troveworks if you wish to learn more about how you can improve your company’s payment collection system with automated accounts receivable solutions.