Dunning Management

You’re in business to make money, but what do you do when a payment fails to go through? Do you just accept it as the price of doing business or do you attempt to recover that failed payment? If you choose the second option, you need a dunning management software to accomplish your goal. 

Dunning software can help you recover payment and reduce churn. In this guide, we’ll discuss what dunning management is, and what to look for in a dunning software. Let’s get started.

What Is Dunning?

As a subscription-based business, you’re very familiar with the concept of customer churn. Customers come and go based on a variety of reasons. Perhaps their needs have changed or they’ve found an alternate solution to their problem. Churn is never fun, but every business should expect some level of active churn.

But then there’s passive churn. Passive churn is different from active churn and, in many ways, more deadly. With passive churn, a customer ends their subscription without actually intending to do so. Perhaps their payment failed and they didn’t know about it. Or maybe their credit card information was entered incorrectly. Perhaps the bank blocked the transaction due to suspicious activity on the account. Or maybe there was a problem with your processor and the payment failure is due to a problem on your end.

Transactions fail all the time and for various reasons. And if you don’t have a plan in place to immediately solve this payment problem, you could say goodbye to that subscription revenue and that customer forever.

This is why dunning is necessary. Churn can kill your business but dunning can kill churn.

Dunning is the process of asking your customers to pay you the money that they owe you.

Dunning may sound imitating, but it really isn’t.

Dunning is actually a courtesy that you extend to your customers to ensure that they continue to receive your services without interruption. It’s letting them know what’s happening so that they can correct it.

But dunning can also be done automatically without even involving your customer. Your dunning software can attempt to recover the failed payment from your customer automatically. We’ll discuss more about how that works later in this guide.

Dunning can include phone calls, snail mail demand letters, and even in-person visits, but for SaaS, dunning is typically handled exclusively online. Your service is online, so it makes sense that your attempts at recovering payment would be online, also. 

Why Do SaaS Customers Churn?

Dunning Management

Before we get into how dunning management software works, let’s discuss the major reasons why customers churn. It’s helpful to understand the causes for churn so that you can make a plan to correct it when it happens in your business.

Here are the most common reasons why credit card payments fail:

  • The credit card numbers were entered incorrectly.
  • The credit card has expired.
  • There aren’t enough funds on the credit card to cover the subscription charge.
  • The credit card was reported lost or stolen.
  • The bank has prevented the transaction.
  • There’s an issue with your website.
  • There’s a problem with your credit card processor.

Because payments can fail for a variety of reasons, it would be a mistake to assume that the payment failed due to insufficient funds. The customer’s bank or your own website may be the issue. 

For these reasons, it’s important to handle dunning with sensitivity and a cooperative spirit. It’s also important that you handle dunning quickly before the customer is locked out of their services. 

By reaching out to your customer right away, you can ensure that they maintain a positive experience with your business. But if you don’t handle dunning correctly, your customer may decide to leave your business permanently. 

Why Do You Need Dunning Management Software?

Dunning Management

By now, you know why you need a plan in place for dunning. You need to collect all of the revenue that’s due your business. But you may be wondering if you really need to invest money into a dunning management software or if you can do it yourself.

Here are 7 things to look for in a dunning management software.

Here’s why a dunning management software is important:

Dunning management software works automatically

You don’t need to do anything on your end to recover failed payments. Your dunning management software will work behind the scenes to ensure that you rescue failed payments without interrupting your day.

It’s good at what it does

Speaking specifically for our dunning software, Stunning, we’ve built an advanced and intuitive software that can even predict the best times to re-attempt payment collection. Our Smart Retries feature will intelligently retry failed payments at just the right time based on your individual business. We take a chisel, not a hammer, approach to payment collection.

Dunning management software can contact your customers before payment fails

Our dunning management software is always on the lookout for potential payment failures. One of the most common reasons for involuntary, or passive, churn is an expiring credit card. 

Here’s how it breaks down: Most credit cards have a three-year expiration date. Approximately 3% of credit cards expire each month and 36% of credit cards expire each year. The majority of your customers may use credit cards to pay for their subscriptions. This means that, at any given time, a sizable percentage of your customers may churn because of a payment failure. 

Your dunning software can automatically reach out to those customers with soon-expiring credit cards and ask them to update their information. 

It can reduce abandonment, too 

Do you have a problem with customers who start to update their billing information but abandon the process mid-way through? Life happens. People get distracted. But your dunning software can redirect them back to the payment page through a series of abandonment emails. This can be done automatically without you needing to take time away from your day to compose and send these emails out. 

Dunning management software saves time

It’s important that you address payment failure (or upcoming payment failure) immediately. If you don’t, you face a difficult choice: Suspend your customer’s access to your service or allow your customer to continue accessing your service while also accumulating a higher debt. 

Neither of these options is good for your business. 

The first option will confuse and frustrate your customers, especially if they’re unaware of the payment failure in the first place. This will also lead to a negative impression of your business. Though the payment failure may have been accidental, they could intentionally decide to cancel their subscription. 

The second option will damage your business. You can’t allow your customers to have access to your service without paying. And, if you do manage to secure payment, getting paid for the bill that they’ve accumulated can cause friction. No one wants to get a huge and unexpected charge on their credit card statement. 

When a credit card payment has failed or failure is imminent, your dunning software can jump into action immediately. It will save you time and ensure that you’re able to resolve the problem swiftly without lingering for months on end.

Final Thoughts

When you operate a subscription-based business, you depend on recurring revenue. It’s not enough to add new customers if you’re not able to maintain the customers that you currently have. You won’t be in business very long if you aren’t able to reduce your churn rate. By using a dunning management software, you’ll be able to rescue failed payments and control your churn rate. 

Stunning has helped businesses recover almost $7 billion in lost revenue since 2012. (That’s billion with a b.) Let us help you. Click here to try Stunning for free and see how we can help your business grow.

Don’t forget to download this list of 7 things to look for in a dunning management software.

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