Dunning, at its heart, is the process of communicating with customers to collect payments that have failed. For any subscription or recurring revenue business, a failed payment is an unavoidable part of the billing cycle. But how you handle it makes all the difference. An aggressive or thoughtless dunning strategy can alienate customers and lead to churn, while a smart, empathetic approach can recover revenue and even strengthen customer loyalty.

This guide will walk you through the essentials of dunning management—not just as a collections process, but as a critical component of your customer experience.

Dunning is the systematic process of chasing down and collecting late payments. These are the main stages of the dunning process and how it works.

• Payment failure - The process kicks off the moment a scheduled payment fails. This could happen for several reasons, including an expired card, insufficient funds, or a bank decline.
• Automated retries - Instead of immediately bothering the customer, a smart dunning system will first attempt to retry the payment. These retries are often scheduled strategically. For instance, trying again a few days later might succeed if the customer has since topped up their account.
• Customer notifications - If automated retries fail, the system begins sending notifications to the customer. This is the most delicate part of the process, where tone, timing, and clarity are crucial.
• Grace period - Most dunning cycles include a grace period, allowing the customer to use the service for a short time after the payment has failed. This prevents an abrupt service interruption over a minor billing issue.
• Subscription termination - If all attempts to recover the payment fail, the final step is to suspend or cancel the customer’s subscription. This is the last resort, as it results in a lost customer.

Effective dunning is essential for protecting your revenue and reducing churn. On average, up to 50% of churn for subscription-based companies is involuntary, caused by payment failures rather than a customer’s decision to leave. A well-designed dunning process can recover a significant portion of this lost revenue while maintaining a positive customer relationship. It turns a potential negative interaction into a smooth, helpful experience.

Managing dunning effectively requires navigating a few common challenges. The biggest challenge is striking the right balance. You need to be persistent enough to recover the payment but not so aggressive that you damage the customer relationship. Another common issue is outdated payment information. Customers often forget to update their card details, making proactive reminders essential. Finally, generic, one-size-fits-all communication can feel impersonal and be less effective.

To build a dunning process that recovers revenue without alienating customers, focus on a few key best practices. These simple tips can help you optimize your communication, timing, and overall approach.

• Personalize your communication - Address your customers by name and reference their specific subscription. A personal touch can make the message feel less like a demand and more like a helpful reminder.
• Be clear and direct - Your dunning emails should be easy to understand. Clearly state the problem (a failed payment) and provide a simple, direct link for the customer to update their billing information.
• Optimize your timing - Don’t send a flood of emails all at once. Space out your notifications over a few weeks, and consider the time of day you send them. An email sent mid-morning on a weekday is more likely to be seen than one sent late at night.
• Offer a grace period - Give your customers a little breathing room. A grace period shows goodwill and prevents unnecessary service interruptions over a small billing hiccup.
• Use multiple channels - While email is the standard for dunning, consider using other channels like in-app notifications or SMS for customers who have opted in. This can increase the chances of your message being seen.

Kinde’s billing and subscription management tools are designed to simplify and automate your dunning process. With Kinde, you can easily configure smart retries, customize your dunning emails, and manage the entire lifecycle of a failed payment, from the initial failure to the final notification. This allows you to focus on building your product, knowing that your revenue recovery process is in good hands.

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