What is dunning and why is it important?

Put simply, the dunning process is the set of steps you take to try and recover a failed payment. It typically consists of sending out a dunning message — an email you send to alert customers and notify them of the problem — and several attempts from your system to reprocess the payment. 

Though that sounds easier than playing the cold-hearted collector chasing down a debtor to recover lost revenue, many subscription business owners dislike dunning. And that’s understandable: it’s common to fall into the trap of believing that a customer has knowingly avoided paying for your service just because they don’t like it anymore. 

But that’s a misconception. 

In fact, recurring billing often fails for much more straightforward reasons, often linked to involuntary churn. For example: 

• The customer’s credit card expired. In this case, their payment information is outdated, and the transaction can’t be processed. Fortunately, this is becoming increasingly rare since most payment service providers update credit cards behind the scenes without intervention from you or your customer. 
• The credit card is lost or stolen. In this event, the issuer will usually have blocked the customer’s credit card, so you can’t proceed with the payment. Understandably, notifying subscription service providers about issues with credit card payments will be the least of your customer’s concerns when their finances may be at risk. 
• Funds are insufficient. If your customer is struggling to pay their bills, their subscriptions are unlikely to be their top priority, which could lead to overdue payments.

As you can see, many transaction and payment processing failures occur for reasons other than a change of heart. Therefore, like it or not, if you don’t want to lose your customers when they’re still happy with your product, dunning should be an integral part of your subscription business routine.

4 tips for an effective dunning process

Business owners aren’t the only people who dislike dunning. Customers also shudder at the mere thought of it. And that’s not surprising: Wikipedia defines dunning as “the process of methodically communicating with customers to ensure the collection of accounts receivables.” Just the definition is depressing enough! 

Still, you can turn the dunning process into a positive customer experience. Here’s how. 

Tip 1: Avoid pre-dunning

Pre-dunning, which is sending a customer a warning email shortly before their CC expiration date, was good practice for years, and you can still find this tip in most articles on the topic. 

Still, with Stripe, Braintree, and other major payment service providers updating CC information in the background, such emails don’t make much sense any longer and can even create unnecessary stress. They end up being no more than false alarms, just like the ones hackers use in their phishing scams. 

Then again, not every card is updated behind the scenes. If you prefer to stay on the safe side when it comes to ensuring timely payments, you can still send an email notifying your customers about their upcoming billing date, just make sure that it’s a friendly message that brings true value.  

Tip 2: Revamp your dunning emails

When it comes to average email open and click-through rates, the numbers hover at just under 20% and 11%, respectively. So, yes: people don’t like emails, and you should keep this in mind when planning your dunning campaign. 

Sure, this doesn’t mean that you should switch to bothering your subscribers with phone calls to collect payment. But you should be very particular about your emails, particularly if you’re thinking of building an automated process to handle them. 

Here are some tips on making your dunning emails friendly, non-intrusive, and potentially more effective. 

Subject Line

When it comes to emails, a good subject line is half the battle. Because scammers often use false dunning letters to get payment data, most people are particularly suspicious of any emails regarding financial matters. Some people are even afraid of opening them in the first place. 

To combat this, avoid using something robotic and vague like “Immediate action required” as a subject line. Instead, make sure that your subject is direct, to the point, and credible at the same time. For instance, depending on your tone of voice, you can use something neutral like “Action required — We couldn’t process your last payment to company name” or informal like “Well, this is awkward: your last payment to company name didn’t go through.” Avoid being aggressive, with messages like “We demand payment.”

Email Body and Closing Paragraph

Even if your customer opens the email, remember that they’re probably unaware there’s a problem. So, be empathetic. What’s more, since dunning is actually a revenue opportunity, just like a sale, treat your reader like a customer, not a debtor. Make sure that your email includes the following: 

• Who you are
• The problem (what the dunning charge is, your suggestions as to the causes of any payment failures, and so on)
• The payment retry date
• A link to a page where a customer can update their billing information, along with further instructions
• A way for your customer to respond, such as a “reply” button and the phone number of your customer support
• A final tip: remember that even if your subscriber has opened an email, they might still be suspicious about its content. Personalize your message and give it credibility by adding your logo and using your company’s tone of voice. 

Tip 3: Make it easy

Keep in mind that people sign up for subscription services because they want less hassle, not more. So when a set-it-and-forget-it service provider reaches out to them with a request, they get frustrated. That’s why it’s critical to make the experience of updating their payment method as smooth as possible. This way, you’ll have more chances that a user will give you the necessary information. 

Here are our top tips: 

• Make it simple. Make sure that your customer knows exactly what they need to do after reading the email. Keep it concise and straightforward, and if possible, avoid adding more than one link.
• Think about mobile users. Given that 79% of smartphone users make purchases via mobile, make sure that both your email and CC update page are mobile-friendly.
• Bypass login. Most people don’t remember all their passwords. If the update is impossible without login, it’s more likely your subscriber will give up on the entire affair and churn out. 

Tip 4: Wait for the right time

Though a dunning email is an integral part of failed payment recovery, we don’t recommend alarming your subscribers with notifications and credit card update requests before they’re absolutely necessary. These can even be counterproductive — for example, when the failure occurred due to temporary network issues. 

Instead, retry the existing card first before sending any emails. With the right tools, you don’t even need to track each and every transaction on your own and then retry charging manually. With Subbly’s dunning tool, for example, you can automate the entire process. 

In Subbly, if a scheduled payment fails due to insufficient funds on your customer’s account, the dunning tool will re-attempt the transaction at a specified frequency until the payment goes through. It can run up to five consecutive retries, and if it fails to collect funds on the last retry, the account is canceled. Even after that, if you find a way to reach out to your customer and recover their payment, you can re-activate their subscription with a click.

TL;DR: Dunning doesn't have to be hard

Nothing beats the warm feeling you get when more and more people are signing up for your subscription service. But, at the same time, nothing is worse than losing your hard-earned customers because of a “trifle” like a failed transaction. That’s why if you want your business to thrive, dunning should be an integral part of your churn management strategy. 

Fortunately, by following the tips in this article, you’ll have your best chance of recovering failed payments gracefully. Things get even easier with Subbly’s dunning management tool, which is just one of more than 50 cool features our platform offers for your subscription business. You can test them all for free with our 14-day trial – get started now!