The elaborate guide 2020 | Dunning as a process for payment of debt
Historically, the term dunning had a very different context to which it would be in a SaaS context today.
What Did Dunning Previously Mean?
The historical use of dunning relates most typically to the collection of debts.
If a company used intimidation tactics or harassment to collect payments, for example, they were said to be dunning.
The term itself comes from the phrase Delinquent User Notification.
Dunning could and still can take many forms. It might be a reminder that payment is overdue, or it could be something more severe like a final or instant demand for payment.
Dunning in Relation to SaaS
Today, dunning still exists. If we ever miss a payment on our credit card or smartphone bill we might even be subject to dunning at various levels as individuals.
However, what we want to focus on is its relevance to you in your SaaS business. How can you use different dunning techniques as a customer service tool that will also protect and help you to grow your revenue?
What Does Dunning Mean in a SaaS Context?
As a SaaS business, you need a dunning process. If you're in any subscription business, you need a dunning process.
The standard definition of dunning is still, according to the Oxford Dictionary,
“(to) make persistent demands on (someone), especially for the payment of a debt.”
However, in your SaaS business, it’s going to much more nuance than that.
An Example of Where You Would Use Dunning in Your SaaS Business
Let's say you have 500 subscribers to your SaaS platform. These have all signed up to recurring billing, and you take a payment from these subscribers each month.
A study conducted back in 2016 highlighted that as many as 9% of all recurring payments would fail.
9% of 500 equals 45 payments a month that will fail. Customers' credit cards will expire. Some customers might have lost theirs and cancelled it. There'll be network issues, cards declined, and a myriad of other potential problems.
Most of the time, customers don't even notice the problem; and this is where dunning will be useful to your business. If your subscription management platform has this feature, you can alert customers on-time and ensure they experience no service interruptions. An efficient dunning process is also a fantastic opportunity to enhance the trust customers have in you.
What You Want Dunning to Achieve for Your Business
The beautiful thing about having dunning management in your subscription management platform is that you can automate the entire process.
What can dunning management do for you?
Notify Customers of a Problem
Notifications should be the first port of call in your dunning strategy.
Don't cancel your customers' subscription the moment their transaction fails, and you do not receive a payment. Instead, let them know there's been a problem, explain that you'll maintain access to their account for a specified period and that you'll try to retake payment shortly.
Ensure you give your customers enough time to update their details or take the necessary action.
Retry Failed Payments
You've given your customers a period of grace, so you need the system to try and take payment after this time.
The number of times you try to take payment is up to you. However, beware that your subscription management platform might limit this or work to timelines.
So long as you have told customers at what point you will cancel their services, you have done as much as you can.
Let You know of Data Related to
Failed Payments, Dunning, and Churn
A great dunning management platform will be able to show you a summary of failed payments. Also, you should be able to see data around how many of your customers updated their payment details, and how many you lost.
Knowing this will enable you to plan out your communications to customers.
When you take payment details, you will have the customer's card expiry date. You can feed this into your customer relationship management (CRM) system to provide reminders to customers in advance of their card expiring.
Over time, you can also change up your reminder emails. If you have enough subscribers and many failed payments per month, you could even A/B test reminder emails to see which ones inspire action.
Manage Customer Permissions
One way to reduce instances of payment failure is to get permission from your customers to get updated details from credit card providers.
Instead of emailing your customers to remind them to update their details, you would contact the card issuer and get the new card details.
Reducing Involuntary Churn and Improving Customer Experiences with Dunning
Involuntary churn is when you lose a customer due to payment failure (also often referred to as “technical churn”). The customer didn't want to unsubscribe, but the failed payment led to you canceling their account. You shouldn't take it for granted that customers will come back. They're just as likely to remember that you didn't give them any time to fix the issue and will look for an alternative. Think about your overall churn rate. What percentage of this is involuntary churn? What could you do about it?
If you don’t proactively manage dunning yourself, you’re telling customers that their card is expiring or whatever happened is their problem. By automating the process, you’re maximizing your potential to keep the customer. You are taking ownership while still letting your customers deal with the issue on their terms.
Using Dunning in Your SaaS Business
By adopting an effective dunning strategy, you will enhance the security and trustworthiness associated with your brand. You’ll also make transactional interactions with your customer more seamless and improve your retention rate.
Payments are going to fail. It’s a fact.
How you position your business to deal with it, or to reduce the number of occurrences, will help your business grow in the long term.