A dunning letter is a formal notice sent to customers to remind them of overdue payments. It serves as a polite but firm request for payment, helping businesses maintain healthy cash flow while preserving customer relationships. This letter typically outlines the amount due, the original due date, and instructions for making the payment.
A dunning letter is a formal written communication sent by a creditor or business to a customer who has an outstanding, overdue payment. Its primary purpose is to remind the customer of their unpaid balance and to request immediate payment, while maintaining a professional and courteous tone.
These letters are typically part of a structured collections process and may escalate in tone or urgency if earlier reminders are ignored. The content of a dunning letter usually includes the amount owed, the due date, a summary of previous attempts to collect the debt, and clear instructions on how to make the payment.
While the first dunning letter may simply assume the customer forgot to pay, subsequent letters often carry stronger language and may warn of late fees, service interruptions, or legal action if the debt remains unpaid.
Despite the discomfort that sometimes surrounds them, dunning letters are a necessary and legal tool in managing accounts receivable and ensuring cash flow, particularly for businesses that rely on timely payments to operate effectively.
You can send a dunning letter as soon as a payment becomes overdue, even if it's just by a day. However, the timing, frequency, and tone of the letter should align with your company’s internal credit policy, the terms of the invoice, and the nature of your relationship with the customer.
For example, long-time clients with a solid payment history might warrant a more patient and courteous approach, while new or high-risk customers might require a quicker and firmer follow-up. A well-structured dunning process balances the need to recover funds with maintaining positive client relations.
A dunning letter should be clear, professional, and informative. Its main goal is to prompt payment by reminding the customer of the overdue invoice and offering an easy path to resolution. Here’s what it should typically include:
You can send a dunning letter as soon as a payment becomes overdue, but the timing and tone depend on your internal credit policy and customer relationship.
The first dunning letter is typically sent within the first week after the payment due date. Its primary purpose is to serve as a polite and professional reminder that the invoice has not been paid. At this stage, the tone should be friendly and understanding, assuming the delay may have been an oversight.
The message should clearly restate the invoice number, amount due, and the original due date, and should encourage the customer to settle the balance promptly. You might also express appreciation for the customer's business and offer assistance in case they have questions or need a copy of the invoice.
Subject: Friendly Reminder – Payment Overdue for Invoice #10234
Dear [Customer Name],
I hope this message finds you well. I’m writing to remind you that invoice #10234, dated [Invoice Date], with a total amount of $[Amount Due], was due on [Due Date] and still appears to be unpaid.
We understand that oversights happen and schedules can get busy. If you’ve already sent the payment, please disregard this message. Otherwise, we kindly ask that you arrange payment at your earliest convenience.
Invoice Details:
If you have any questions, need a copy of the invoice, or would like to discuss the balance, feel free to contact me directly.
Thank you for your attention, and we appreciate your prompt response.
Warm regards,
[Your Name]
[Your Title]
[Company Name]
[Email Address] | [Phone Number]
If the payment remains outstanding after the initial reminder, a second dunning letter should be sent approximately 10 to 20 days after the due date. This message should take on a slightly more direct tone, while still maintaining courtesy and professionalism. The letter should remind the customer of the unpaid invoice and reference the previous reminder.
It's helpful to include multiple payment options to make it easier for the customer to resolve the issue. Also, you may start to mention the possibility of late fees or service interruptions if the account is not settled within a specific timeframe, without sounding overly harsh or aggressive.
The third dunning letter, usually sent after 30 or more days of non-payment, serves as a final notice before you take further action. At this point, the tone becomes firmer and more serious. The letter should outline all prior attempts to collect the payment and emphasize the urgency of the matter.
You should clearly state any consequences of continued non-payment, such as the application of late fees, suspension of services, or the involvement of a collections agency or legal action. While the message should still remain professional, it must convey that this is the last opportunity to resolve the debt amicably before escalation.
Subject: Final Notice – Immediate Payment Required for Invoice #10234
Dear [Customer Name],
Despite our previous reminders, we note that invoice #10234, dated [Invoice Date], with an outstanding balance of $[Amount Due], remains unpaid. The payment was due on [Due Date], and as of today, it is [Number of Days] days overdue.
We value your business and hope to resolve this matter promptly. However, please be advised that if payment is not received within 7 days of this notice, we will have to consider further actions, which may include applying late fees, suspending services, or referring your account to a collections agency.
Invoice Details:
If you have already sent payment, please disregard this notice. Otherwise, we urge you to settle the outstanding balance immediately to avoid any additional charges or interruptions.
Should you have any questions or require assistance, please contact me directly at [Your Contact Information].
Thank you for your prompt attention to this urgent matter.
Sincerely,
[Your Name]
[Your Title]
[Company Name]
[Email Address] | [Phone Number]
When deciding what interest and dunning rates to charge on overdue invoices, there are several factors to consider, including legal limits, industry norms, and your company’s credit policy.
Most jurisdictions have laws regulating the maximum interest rate you can charge on late payments, often called statutory interest rates or late payment interest rates. These rates typically range from about 4% to 8% annually, but they can vary widely depending on the country or state.
For business-to-business (B2B) transactions, it’s common to charge a late payment interest rate between 1% and 1.5% per month, which translates roughly to 12% to 18% annually. This rate is often stated clearly in your contract or terms and conditions.
In addition to interest, some companies charge a fixed dunning fee (sometimes called a reminder fee) for each overdue notice sent. This fee covers administrative costs related to chasing late payments. Typical dunning fees can range from $10 to $50 per reminder, depending on your industry and customer base.
Avoiding the dunning stage altogether is ideal for maintaining strong cash flow and good customer relationships. Here are some important steps you can take to minimize late payments and keep accounts current before you ever need to send a dunning letter:
Dunning management is a process for collecting overdue payments, balancing firm debt recovery with customer care, and improving cash flow and financial health.
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