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Pre-Dunning: Why It Is Beneficial for Your Collection Process

What you’ll learn

  • Learn simple yet effective tricks to accelerate your collections process.
  • Understand the benefits of proactive reminders in the B2B market.
  • Get tips to create effective pre-dunning emails for faster and prompt payment collections.

Feature Image of Pre-dunning
Collection management in a mid-sized company is a challenging task. A major portion of the collectors’ time is spent prioritizing tasks and following up with clients on outstanding debt. After the client has agreed to the contract and payment terms, the expectation is to collect the payments by the due date. Disappointment sets in when the payment due date arrives, but the client fails to pay due to invoicing discrepancies such as wrong line items, unforeseen extra charges, or tax miscalculations. In many cases, payments are delayed due to paperwork errors or oversight on the quality or quantity of the product delivered. Some businesses may also delay payments due to working capital issues or cash flow challenges. Whatever the case might be, you need to take proactive measures to remind and persuade your clients to pay. Pre-dunning can make a significant difference in your collections strategy and improve your cash flow.

What is pre-dunning?

Pre-dunning is the process of sending proactive reminders to customers 30, 15, or three days before the due date. These reminders contain a detailed summary of the invoice and payment details along with the outstanding balance. 

Customers often tend to procrastinate going through invoices until the due date. Sending pre-dunning emails could be an opportunity to thank your customers for their business while also subtly reminding them that you expect to receive the payments on time.

Why should you include pre-dunning notifications in your collection process?

Pre-dunning is a dunning best practice. Customers often fail to pay because they did not comprehend the payment terms fully or were unaware of the obligations they were committing to. These irregularities can be readily rectified by including pre-dunning into your collection strategies. 

Pre-dunning helps prevent invoice-related discrepancies, short payments, and payment disputes. Moreover, pre-dunning allows the customer to review the invoices ahead of the due date and raise any issues or concerns they might have.

Here are some benefits of implementing pre-dunning into your collections strategy.

Illustration of the three benefits of Pre-dunning, one is due date reminders, the second one is error-free collections, and the last is the increased recovery rate.

1. Soft reminder about the due date

Late payments often happen because customers forget or miss the due dates. A payment reminder can help persuade your customers to pay on time for the goods and services.  It also allows customers to proactively take steps to complete the necessary payment approvals and release the money.

2. Error-free collections process

Many times payments are delayed because of errors in the invoice or disputes raised by customers. Disputes arise when there is an error in the dollar amount or the quantity of the goods shipped. Tax miscalculations and quality issues with the product(s) delivered may also lead to disputes and a delay in paying up. A pre-dunning email can help you identify such issues at the earliest and resolve them before the payment due date.  

3. Increased recovery rate

Due to the lack of a defined collections strategy, many debt collection cases reach a point where the creditor considers negotiating a payment plan and accepting partial payment. Although this is not an ideal situation, businesses often prefer this compared to the other option of not getting paid at all.

One of the best strategies is to remind clients of the contract details well before the payment due date. You can use a  pre-dunning email to provide more clarity on the payment due date, the payment conditions, and the implications of late or nonpayment. Even in case of unforeseen or unfortunate circumstances at the client’s end, you could begin negotiating on the right foot by reminding the customers that they are indebted to you.

Here’s an example of a pre-dunning email

Pre-dunning emails need to be polite and action-oriented. Here’s a checklist that you can follow for your next pre-dunning email: 

  • Set the right tone: Be polite and treat your customers with empathy. 
  • Make it personal: Personalization helps your email stand out from the mass emails that clutter your customers’ inbox.
  • Add details: Send detailed information about the invoices that need to be paid.
  • Be specific: Specify the exact amount and date by which the amount is due.
  • Make it easy to pay: Include a link to the payment portal to improve your customer’s experience.

Now that you have a brief idea of what to include in a pre-dunning email, let’s look at an example:

Different sections of pre-dunning emails with example

A way forward

Outstanding debt, if not managed efficiently, takes a heavy toll on your company’s financial health. Pre-dunning techniques can help improve your collection strategies. Automating pre-dunning can ensure that your executives do not miss any accounts or aren’t over-burdened with this step. 

Identifying high-risk customers and sending timely pre-dunning emails is tedious, and this is where automation could give you the edge.  Use HighRadius’ e-invoicing and collections solutions to automate your collections process, including sending timely pre-dunning emails to your customers. Enhance your dunning management now.

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