Dunning Letter

What Is a Dunning Letter?

A dunning letter is a written reminder sent to the customer, prompting them to clear their overdue balances. It is an essential part of the accounts receivable process and plays a key role in a business’s collection efforts. The term ‘dunning notice’ may also be used interchangeably to describe this type of communication, whether sent by email, letter, or automated system.

These letters serve as follow-ups to unpaid invoices and usually start out with polite reminders, nudging the customers to clear their dues. Gradually, they become more urgent if the payment remains unpaid. They may include details such as the amount due, the original due date, payment instructions, and the consequences of non-payment, such as service disruption or additional fees.

What Is the Dunning Process?

The dunning process is a structured approach businesses use to recover overdue payments. It begins before the due date by sending friendly reminders to customers whose payment deadline is approaching, acting as a courtesy nudge.

Once the due date passes and no payment is received, the process continues with gentle follow-ups, assuming the delay might be unintentional. These early messages focus on reminding the customer politely, giving them the benefit of the doubt.

If there’s still no response or payment, the communication becomes more direct. Reminder emails or letters are sent at regular intervals, with each one gradually increasing in urgency and clearly outlining the consequences of non-payment, such as late fees, service interruption, or escalation to collections.

However, it’s important to note that no two dunning processes are the same.

Some companies begin reminders a few days before the due date, while others wait 5 to 15 days after the payment is overdue before initiating any contact. The frequency, tone, and intensity of the messages can also vary based on the company’s policy, customer type, and industry norms.

Ultimately, businesses should adopt a dunning strategy that aligns with their operational model, customer relationships, and brand voice.

How to Go About the Dunning Process?

♦ Identify Late Payments: Monitor accounts to detect missed or overdue invoices in real time.

♦ Determine Distribution Schedule: Decide how frequently and at what intervals dunning letters will be sent.

♦ Create Dunning Letter Templates: Prepare message templates for various stages, including friendly reminders, firm notices, and final warnings.

♦ Distribute Dunning Letters: Send letters manually or streamline the entire workflow using automation tools.

4 Stages of a Dunning Letter

Although the dunning strategy may vary from business to business, here are the 4 stages that remain the same overall and around which the process usually revolves. 

1. Gentle Reminders

Once the due date has passed, the business begins sending polite follow-ups. These initial reminders are typically worded gently, assuming that the delay is accidental. It's common for companies to send multiple such messages in the initial days after the due date, giving the customer time to respond without feeling pressured.

2. Firm Follow-ups

If the payment still hasn't been received, the tone of the communication becomes more direct. Follow-up notices during this stage are firmer and stress the importance of immediate action. These messages are typically spaced out by a few days to avoid overwhelming the customer while still maintaining a sense of urgency.

3. Final Warning

After repeated attempts, the final stage involves clear warnings about potential consequences. These final notices often mention service suspension, late fees, or escalation to a collections agency. Depending on the company’s internal policy and industry norms, businesses may send one or two such warnings before moving to formal recovery actions.

4. Escalation to Collections

If all attempts at direct communication fail, the account may be referred to a collections agency or legal team. Before doing so, one last notice is often sent, giving the customer a final chance to resolve the matter before external action is taken.

What to Include in a Dunning Letter

An effective dunning letter format should be clear, concise, and action-oriented. Its goal is to remind the customer of the overdue payment while maintaining a professional and respectful tone.

Here are the key elements to include in a dunning letter:

1. Customer Details

Include the recipient's name, company (if applicable), and contact information to personalize the message.

2. Invoice Information

Make sure to include the following details:

• Invoice number
• Invoice date
• Original due date
• Amount due

3. Payment Summary

Clearly state the total outstanding balance, including any late fees or charges (if applicable).

4. Payment Instructions

Provide clear directions on how to make the payment, including:

• Accepted payment methods (e.g., bank transfer, credit card, online portal)
• Account details or payment link
• A new payment deadline, if applicable

5. Reminder of Previous Communication

Briefly reference previous reminders (if this isn’t the first notice) to show the customer a record of ongoing communication.

6. Consequences of Non-Payment

Professionally outline what will happen if the payment isn’t made. This may include:

• Additional late fees
• Service suspension
• Escalation to collections

7. A Call to Action (CTA)

 Encourage the customer to take immediate action, such as:
“Please make the payment by [date] to avoid service disruption.”

8. Contact Information

Include a contact number or email in case the customer has questions or needs clarification. This helps reduce friction and may speed up resolution.

9. Professional Closing

End with a courteous sign-off, your name, business name, and contact details.

Dunning Letter Examples

Now that we have understood the meaning of dunning letters, let's have a look at some of the examples:

1. Initial Reminder (Before Due Date)

Subject: Friendly Reminder: Invoice #INVNO Due Soon

Dear [Customer Name],

We hope you're doing well! We wanted to drop a gentle reminder that invoice #INVNO, dated [Invoice Date], will be due on [Due Date].

The total amount due is [Amount Due]. Payment can be made via [Payment Method or Link].

If you have already settled the invoice, please disregard this message. Feel free to get in touch if you require any further assistance or clarification.

Thank you!

Best regards,
[Your Name / Company Name]
[Phone Number] | [Email Address]
  

2. Initial Reminder (After Due Date)

Subject: Payment Reminder – Invoice #INVNO Overdue

Hi [Customer Name],

We wanted to remind you that invoice #INVNO, dated [Invoice Date], was due on [Due Date] and is now overdue by [X] days. The outstanding balance is [Amount Due].

If you’ve already taken care of this, thank you! Otherwise, we’d appreciate it if you could make the payment at your earliest convenience to avoid any late fees.

You can pay using [Payment Method or Link]. Feel free to get in touch if you require any further assistance or clarification.

Thank you.

Kind regards,
[Your Name / Company Name]
[Phone Number] | [Email Address]
  

3. Firm Follow-Up

Subject: Payment Still Pending – Invoice #INVNO

Dear [Customer Name],

We hope you are doing well. We’re following up regarding invoice #INVNO, dated [Invoice Date], which was due on [Due Date] and remains unpaid.

The outstanding balance of [Amount Due] is now [X] days overdue. We kindly request that payment be made at the earliest to avoid any late fees or service disruptions.

If the payment has already been initiated, we would appreciate it if you could confirm the same. Should you have any questions or require assistance, please feel free to contact us.

Thank you for your prompt attention to this matter.

Sincerely,
[Your Name / Company Name]
[Phone Number] | [Email Address]
  

4. Final Reminder

Subject: Invoice #INVNO: Immediate Payment Required

Dear [Customer Name],

This is a final reminder regarding invoice #INVNO, dated [Invoice Date], for the amount of [Amount Due], which remains unpaid and is now [X] days overdue.

Despite our previous reminders, we have not yet received the payment. Kindly note that if the outstanding balance is not cleared by [Final Deadline Date], we may be required to proceed with further action, which could include suspension of services, referral to a collections agency, or legal action.

Payment can be made via [Payment Method or Link]. If you have recently completed this payment, no further action is required.

Should you have any questions or concerns, please don’t hesitate to reach out to us directly.

We appreciate your immediate attention to this matter.

Sincerely,

[Your Name / Company Name]
[Phone Number] | [Email Address]
  

5. Escalation to Collections / Legal Action Initiated

Subject: Notice of Action – Invoice #INVNO Referred to Collections

Dear [Customer Name],

We are writing to inform you that despite multiple reminders, invoice #INVNO, dated [Invoice Date], in the amount of [Amount Due], remains unpaid and is now [X] days overdue.

As no resolution has been reached, we regret to inform you that your account has now been referred to a collections agency, and/or a legal notice has been initiated to recover the outstanding balance.

This action was taken in accordance with our payment policy and after providing multiple opportunities for resolution. At this stage, any further communication regarding the payment should be directed to the assigned collections agency or legal representative.

If you believe this action was taken in error or have already made the payment, please contact us immediately with proof of payment.

Sincerely,

[Your Name / Company Name]
[Phone Number] | [Email Address]
  

Note: Be sure to customize these dunning letter samples to reflect your business tone, customer relationship, and industry-specific requirements.

Best Practices for Sending Dunning Letters

To make your dunning process effective and respectful, keep these best practices in mind:

• Start Early: Send reminders before and shortly after the due date to prevent escalation.
• Maintain a Courteous Tone: Even when firm, your tone should remain professional and non-confrontational.
• Use a Structured Schedule: Space out your reminders appropriately, avoid bombarding, but don’t wait too long.
• Customize by Customer Type: Tailor your messaging and urgency based on account value, payment history, or risk level.
• Ensure Legal Compliance: Follow relevant laws and industry regulations regarding debt communication and disclosures.
• Automate with the Right Tools: Use automation tools to schedule, track, and personalize dunning letters, saving time while boosting recovery.

To Sum Up

An effective dunning process is more than just a string of reminders. It’s a strategic blend of timing, tone, and tools. It is crucial that every step aligns with your brand voice.

By building a process that’s both systematic and human, businesses can recover dues faster, preserve relationships, and keep cash flow healthy. Whether you’re sending one letter or managing a full-scale automation setup, the key is consistency, courtesy, and clear communication.

FAQs

1. What Is a Dunning Notice?

A dunning notice is a formal communication sent to remind a customer of an overdue payment. It serves the same purpose as a dunning letter but may be delivered by email, SMS, or other formats.

2. When Should I Send a Dunning Letter?

Usually within 7–10 days after an invoice is overdue, though some companies start reminders just before the due date.

3. Is a Dunning Notice Legally Enforceable?

While not legally binding, dunning letters serve as documented proof of your collection efforts and can support legal action if needed.

4. Can I Automate the Dunning Process?

Yes. Most modern accounting and invoicing systems allow for automated dunning letters based on payment status and timing.

5. What’s the Difference Between a Dunning and Collections Notice?

A dunning letter is sent by the business directly; a collections notice usually comes from a third-party collections agency after the internal process has failed.