Dunning Letter

A dunning letter is a notice or notification sent to customers who are missing out on due payments. Collection teams send them out to encourage payment and address overdue accounts. It informs customers that they are overdue in paying an account receivable to the sender.

The date of the unpaid invoice, its invoice number, the amount owed, and any late payment fees or interest penalties are always included in the mailings. Initially, the business may send polite reminders as a gentle nudge for clients who may have overlooked the payment. However, the focus remains on securing the settlement. This encourages timely payments and helps maintain positive relationships.

• A dunning letter is a notice sent to customers who are overdue on their accounts. Collection teams use it to prevent settlement failures.
• Payments may be made after the due date for various reasons, including inadequate finances, forgetfulness, or a breakdown in customer-company communication. 
• Days late and staged dunning are the two dunning letter formats widely used.
• Reminder letters for past-due payments are a professional, transparent communication method that safeguards cash flow, ensures settlements, enhances customer response, and provides legal protection.

A dunning letter is a formal demand for payment from the debtor when an invoice is not paid on time. It is essentially a reminder that the payment is past due and that legal action will be taken if it is not paid by a certain date. There are a few things that the letter should minimally contain. It should include the name as a heading, the invoice number of the payment due, the date of the deadline (the date by which payment was due on the initial invoice), and it should state that it's a notification of the missed payment. They also contain the dunning fee or any other late payment fees, outstanding amount, etc. 

Private clients must be informed in the first invoice that they will be in default if the payment term expires without payment. A payment reminder must be issued before sending a dunning letter if a reminder is not sent. On the other hand, companies can send the letter right away to clients who are businesses, avoiding the step of sending a payment reminder. Additionally, business clients may enter default immediately thirty days after the payment term expires without further notification.

There are various reasons why payments might be made after the due date, including insufficient funds, forgetfulness, or communication issues between the customer and the company. Late payments may also be caused by a company's billing practices or level of customer service. For any reason, it's necessary to use a technique that prompts and reminds clients of their payments.

There are two types of dunning letter format - days overdue and staged dunning. The day's overdue method creates letters depending on a range of days past due, accounting for reception grace days for a particular customer. Companies can send letters according to the number of days after the last letter was sent by using staged dunning. In this method, businesses send letters based on the past-due debit item's dunning levels. Customers can specify a minimum period of days between the letters before the dunning levels of an item can be increased.

Let us look at a few examples to understand the dunning letter in business communication:

Example #1

Suppose ABC Ltd is a small wood manufacturing company that is facing a late payment issue. They had sent an invoice to one of their customers with a due date of January 10th. Unfortunately, it has been a month since the due date, and the payment remains outstanding. Here is how the sample dunning letters of the company would look like if sent by its accounts manager:

Subject: Payment Reminder - Invoice

Dear ,

We hope this letter finds you well. We would like to inform you that an invoice with a number was issued to you on with a due date of . It has come to our attention that the payment for this invoice is currently outstanding. We kindly request that you review your records and settle the outstanding amount of as soon as possible to ensure smooth business operation. Attached to this letter is a copy of the original invoice for your reference.

If you have already paid, please disregard this notice, and we apologize for any inconvenience caused. If you have any questions or require further information regarding this invoice or the payment process, please do not hesitate to contact our accounts receivable department at . Our team will be more than happy to assist you. We value our business relationship with you and trust that this matter can be resolved promptly. Your immediate attention to this matter is greatly appreciated, and we look forward to receiving your payment soon.

Thank you for your cooperation.

Sincerely,

Example #2

On March 30, 2023, the Superior Court of Pennsylvania issued a significant decision in the case of Starleen Matteo against EOS USA, Inc. The court held that debt collectors do not violate federal or Pennsylvania law when sending dunning letters to debtors after the expiration of the statute of limitations, as long as legal action is not initiated or threatened. 
In essence, the above indicates that according to the Superior Court of Pennsylvania, debt collectors can legally send dunning letters to debtors after the expiration of the statute of limitations, as long as they do not threaten or initiate legal action regarding the time-barred debt. The court said that even though the statute of limitations had passed, it didn't mean the debt was wiped away. Instead, it just means that the creditor can't legally force the debtor to pay it back through the courts anymore.

The following letter featured on the mn.gov website presents a simple dunning letter template:

Some of the benefits the sending out these letters are given as follows:

• Professional reminder: Sending out these letters to clients about past-due payments is a formal and professional way to communicate with them.
• Disclosure: The letters ensure that the payment collection process is transparent and that the efforts taken to collect payment are recorded.
• Protects cash flow: These letters ensure that settlements are made and hence ensure the flow of due payments. This way, the company's profits would not come to a pause.
• Better response to payments: When customers receive subtle reminder letters, they may prioritize and pay more quickly for past-due bills.
• Customer relationship management: The letters can help sustain a strong customer relationship. They remind customers of their responsibilities and allow them to settle.
• Legal protection: The letters show that the business tried to contact the client and work out a payment plan in case of a legal dispute.

This article has been a guide to the Dunning Letter and its meaning. Here, we explain the topic in detail, including its templates, examples, types, and benefits. You may also find some useful articles here -

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