In this article
Talk to our experts- Dunning
- Dunning is the process a seller uses to remind customers about overdue invoices and ask for payment, in reminder levels that can escalate in tone from the first reminder to later ones. In B2B, it applies to invoices sold on payment terms such as net 30, once the due date passes without payment. The reminders are called dunning letters.
How it works
Dunning is the collections step of accounts receivable: when a B2B invoice on payment terms passes its due date unpaid, the seller sends reminders, also called dunning letters, that tell the customer what is overdue and ask for payment.
Microsoft's documentation for Dynamics 365 Business Central, an ERP, describes the steps a collections process often involves:
- Statements: a customer statement shows balances, overdue balances and the related transactions, and can serve as a first reminder.
- Reminders: reminders, also known as dunning letters or payment requests, inform customers of overdue balances. A reminder can list overdue and open entries, so the customer also sees upcoming due dates.
- Finance charges: interest or fees for overdue amounts, added to a reminder or sent on their own.
- Direct contact: a phone call or email about the overdue balance, to sort out misunderstandings and disputes.
Reminder levels
Escalation is set up in advance. In Business Central, each reminder term has a set of reminder levels that you define. Each level holds rules about when the reminder is issued, what fees to charge, and whether to calculate interest. A grace period setting keeps a reminder from going out for a bill the customer already paid. A batch job can create reminders for every customer with overdue balances, and issued reminders typically go out as email.
What a dunning letter contains
In Business Central, a reminder lists the customer's overdue entries and can include open ones, and each reminder level can add text printed before and after those entries. Placeholders fill that text with values from the reminder, including:
- The document date and the due date
- The remaining amount
- The interest rate and interest amount
- Any additional fee
- The total amount of the reminder and the reminder level
The message for the first level can have a different tone or content than the second or third. Microsoft notes that you can define an unlimited number of reminder levels, though most companies use only two or three.
Dunning letters vs. finance charge memos
A dunning letter reminds the customer about the overdue amount and can include interest or fees. A finance charge memo, in Business Central's terms, claims interest or fees without reminding the customer of the overdue amount.
This is general information, not legal advice.
Example
A distributor ships $12,000 of product to a contractor on net 30 terms. The invoice is unpaid on day 30, so dunning begins under the reminder levels the distributor set up:
- Level 1, day 35: after a 5-day grace period, a reminder lists the $12,000 overdue invoice and the next open invoice.
- Level 2, day 50: a firmer reminder adds a $25 fee, so the balance shown is $12,000 + $25 = $12,025.
- Level 3, day 65: the account manager calls the contractor about the $12,025 balance.
On Shopify
Shopify lists payment reminders among the B2B features on the Basic, Grow, Advanced and Shopify Plus plans.
- Reminders: Shopify Flow's Send payment reminder action sends a payment reminder to the main contact for a B2B company, based on a payment schedule. Templates send it on the order's due date or after it, and reminders can also be set up in your admin.
- Timing: net terms and due on fulfillment only start after the order is created or fulfilled, so a reminder can't be sent before that.
- Overdue orders: a filter view of Due orders shows every order that is overdue or due today. After terms expire, the buyer can still pay, but the order displays as Overdue in customer accounts.
- Capture: payments aren't automatically captured when the payment terms expire.
How Uncap helps
Uncap's guide to Shopify net terms draws the line: credit checks, credit limits, dunning and AR aging stay a back-office decision, usually run in the ERP and synced to which companies get terms. On the storefront, Uncap Portal puts NET terms, invoices, and payments in the portal, so buyers can pay on terms, view invoices, and settle balances.
Sources
Frequently asked questions
What is the meaning of a dunning letter?
A dunning letter is a reminder that tells a customer an invoice is overdue and asks for payment. ERP documentation such as Business Central's uses dunning letter, reminder and payment request for the same document, and a dunning letter can list overdue and open invoices and add interest or fees.
What does dunning mean?
In business, dunning means the process of reminding customers about overdue invoices and asking for payment, often through reminder levels whose tone and content change from the first reminder to later ones.
How does the dunning process work?
First, the seller sets reminder levels in advance, each with rules for when the reminder goes out, what fee to charge and whether to add interest. Once an invoice passes its due date and any grace period, the first-level reminder is sent, and later levels follow if the invoice stays unpaid.
