For subscription-based businesses everywhere, churn is the ultimate enemy. And it’s no wonder, with cancelled subscriptions leading to a range of negative consequences, including lost revenue and ramped up customer acquisition costs (CAC). Many SaaS companies use dunning to attempt to recover this lost revenue, but is it the most effective course of action? Explore SaaS dunning in greater depth, right here.
What is Dunning?
Dunning refers to the process of asking customers for money that they owe to the company. This usually happens when a customer doesn’t have enough funds in their account to make a purchase or their credit card has been declined. Dunning has a bad reputation with both customers and businesses. Customers find it invasive, and even threatening, while businesses often experience difficulty when trying to collect payment from uncooperative customers. Ultimately, however, the dunning process is simply a way to recover lost revenue, which means that it’s important for SaaS businesses to understand how it works.
How does the dunning process work?
There are many different reasons why a transaction may have failed, including card expiry, lost/stolen cards, and insufficient funds in the account. Dunning is an automated process that allows you to take several types of action whenever you encounter a failed card payment, including:
Send reminders about outstanding payments from declined cards
Alert customers via email about issues with a transaction
Implement smart retries for failed transactions
Request permission to collect up-to-date credit card information from providers
Getting your dunning letters right
While dunning can be difficult to implement, it’s important to remember that as the chaser (rather than the person being chased), you’re the one who’s setting the tone of the discussion from the get-go. That’s why it’s beneficial to implement these dunning best practices when chasing up a debt:
Choose your language carefully – When you’re composing a dunning letter or email, tone and language matter. It’s also important not to obfuscate or use confusing language. Explain who you are, why you’re getting in touch, what the issue is, and the steps that they can take to rectify the problem.
Empathise with your customers – If you’re accusatory and imply that the customer is attempting to hoodwink you in any way, you’re only going to succeed in driving them away for good. After all, in most cases your customer won’t even know that their payment hasn’t gone through. Remain friendly and professional throughout the dunning process. And remember, the original meaning of the verb “dun” meant “to harry someone for unpaid debts.” That’s a great way to develop a bad reputation as a business. At some point, you may be better served by simply cutting ties with an uncooperative customer.
Be concise – There’s no need to drag your dunning letter out over pages and pages of dense text. Aside from the fact that this is more likely to discourage your customers from making payment, it’s simply not necessary. Use bullet points to make the copy easy to read and bold any particularly important pieces of information, such as amounts due or deadline dates.
Alternatives to dunning
Of course, dunning notices aren’t the only way to deal with failed transactions. Sometimes, it pays to tackle the problem at its source, and the only way to do that is to reduce your business’s reliance on credit card payments. That’s why it may be a good idea to think about using bank to bank payment methods like ACH payment. With a payment provider like GoCardless, you can completely cut down on the risk of involuntary churn by taking payment directly from your customer’s bank account, bypassing the SaaS dunning process entirely.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.