All About Dunning Letters Used by AR Departments

All About Dunning Letters Used by AR Departments

This is part of HappyAR’s ongoing AR University series where we help busy company owners and executives get a quick understanding of accounting metrics, financial statements, finance operations, and accounts receivables concepts. Make sure to follow us as we continue to post new guides that can help companies of all sizes. This article is focused on how companies use a dunning letter in their financial operations

What does “dunning” mean?

dunning letter

The origin of the word “dun” is disputed but its original use was first recorded in the early 17th century (1620). The definition is:

verb (used with object),dunned,dun·ning.

to make repeated and insistent demands upon, especially for the payment of a debt.


a person, especially a creditor, who duns another.

a demand for payment, especially a written one.

What’s a dunning letter?

what is a dunning letter

Simply put, a dunning letter is slightly more aggressive in tone than a reminder email but less aggressive than a demand letter.

It serves a role in between these two extremes when an account balance is owed, and gentle reminders have been made to collect.

The purpose of this note is to clearly increase the intensity of the collection without damaging the client relationship with a much harsher and threatening tone. While that may be required in the future, using it too early can have unwanted consequences.

Dunning letters and emails can help reduce days of sales outstanding (DSO), increase cash flow, and avoid the heavy percentages taken by collection agencies and debt collectors.

When should I use a dunning letter?

when to use

Using automation technology for your account receivable follow-up workflow and includes visibility into when emails are opened, clicked on, and forwarded will give you a much better understanding of if your request is being ignored or not seen in the first place.

This is a lot more challenging to do with paper invoices unless you are mailing with delivery confirmation.

Don’t be surprised if way fewer than 50% of your email follow-ups and subsequent letters are being seen by the recipient. This could be related to:

  • Turnover in their accounts payable department and the recipient no longer being there
  • Specific copy being used in your emails that send them to the recipient’s spam folder
  • Problems with your domain’s deliverability settings that send messages to a spam folder
  • Messages being overlooked due to high consistent volume
  • Not personalizing follow-up emails enough and having them being disregarded before opening
  • Not sending a quick follow-up forwarded email two days after the original. These often receive better response rates, so we highly encourage them.

If you are unsure if your correspondence is being seen, make sure to follow up with a phone call and leave a voicemail every time.

If you’ve exhausted two or three email outreach attempts, with follow-up emails for each, and voicemails, it’s time to escalate the message in a tone and send a dunning letter.

Information to include in dunning letter templates

include in dunning letter

Here’s what you’re going to want to include in your dunning letter and what you should avoid:

  • Include a summary of payment reminder attempts you have made to date. AP departments are busy and may not recall the previous notes you sent.
  • Reiterate the invoice amount due, original due date, days past due, and a brief description of what the debt is related to. Include access to the original unpaid invoice.
  • Suggest that you will be escalating the request to executive members of their team if a response isn’t received, and prepare to follow through with this by researching senior contacts on LinkedIn.
  • Explain all payment method options available to them and any payment plan information if you offer those.
  • Remind them that you will be following up via phone shortly – and do it!
  • Request a status update and explain that overdue payments cause a financial burden to your organization.
  • Briefly explain any next steps in the debt collections process if you have them defined but DO NOT use threatening language around damaging reputation, credit scores, or legal action. Not only is this unethical and unlikely to help resolve anything, it can also be illegal. Know what the collection rules and laws are and obey them!

About HappyAR

Follow HappyAR’s AR University for more quick finance learning opportunities, like this one on dunning letters, intended for business owners that are interested in gaining a better understanding of the health of their business and their finance operations.

HappyAR is a seamless SaaS that quickly and easily boosts your accounts receivables work. We save companies of all sizes thousands of dollars each year by optimizing the speed and efficiency of their collections methods. No more guessing if someone has received an invoice or trusting that it will be paid on time. This is a fully integrated solution that pays for itself over and over each month by preventing defaults and preserving client relationships.

HappyAR is an ever-evolving toolkit that helps optimize your invoice collections process and our solution starts at $0/month and scales up based on your invoice volume. Visit us at www.happyar.com to learn more.

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