A reminder strategy to better organize payments and dunning process

Updated on 04/10/2022

What is a reminder strategy to better organize payments and dunning process? The collection of overdue payments, also referred to as “dunning“, is a long and difficult process that requires a real reminder strategy in order to be organized and conducted successfully. 

In a previous post we talked about dunning management in the world of utilities. In this post, we will identify methodologies and tools that private and public organizations can use to establish their credit management processes. The stakes are high: it is no longer just a matter of reaching their clients, but rather of establishing more sustainable, productive, and satisfactory relationships with them, both in terms of expected financial results and for strengthening the company’s image. 

So, in order to better organize payment reminders and dunning process, where should we start? The first step is about pulling together the resources we’ll need to articulate the process and define business objectives. In other words, it requires getting strategic.

How to set up a reminder strategy and dunning process

Dunning or credit collection, is a process that is part of the broader credit control system. We defined it in our recent post, where we also described the state of the art and future prospects, focusing on the current situation in Italy. Here we add some clarifications on the difference in meaning between credit management and credit collection. 

Credit management identifies the set of activities carried out by the company to improve its financial management through the reduction of credit risk, in constant interaction with customers. Credit collection instead refers to a series of specific activities that fall within the general category of credit management processes.

To increase the chances of recovering outstanding receivables, organizations must keep track of outstanding payments. To be able to control and manage a considerable number of accounts, they also need to adopt programmed and sequential processes. Customers who do not respond to reminders or who evade payments give rise to a series of critical issues that can only be tackled today thanks to a real reminder strategy. A strategy of this type is all the more effective if it provides a structured approach for each phase of collection, management, control, and communication. 

The creation of a high-performance reminder strategy allows companies to be better equipped to react to emergencies and changes. The right strategy, tailored to the specific needs of an organization, includes the most advanced collection management solutions available today, powerful tools and methodologies that the company can use in a short time to:

• identify and prescribe the most appropriate frequency of sending the reminder;
• establish the best form of communication, in a given context, to inform and persuade a non-paying client, before initiating legal proceedings.

The objectives of a reminder strategy are to significantly reduce overdue payments and increase cash flow.

Credit management tools: focus on data

Among the technologies for credit management, data mining tools contribute significantly to the qualification and prioritization of customers. It is now clear — and this was emphasized during the conference on corporate digitization of the Observatory of the Politecnico di Milano — that the data in a “simple” document such as the invoice or reminder are actually a valuable information asset, able to provide an extremely rich and complete picture of the choices, needs, and behavior of customers. The extraction and valorization of these data becomes an indispensable operation, which is increasingly strategic for the positioning objectives of companies and products, in the management of corporate cash-flows, but also, especially in the case of B2C, in interactive and personalized communication processes with end consumers. 

Thanks to shrewd data management, companies can better know the audience of their customers and organize it into segments that are useful for subsequent actions, whether sales, marketing, or solicitation. They are able to then centralize customer information (personal data, contacts, invoices, documents, actions carried out, and those still to be carried out), so as to always have all the activities that are due under control and act promptly to reduce the time to start the recovery activities and thus reduce the collection time.

The methodology: structure, manage disputes and communicate

In order to develop the right solicitation strategy and dunning process, an organization must embrace an approach of progressive automation, becoming familiar with a methodology that proceeds by successive steps. These are the main steps.

1. Structuring processes

This phase should form the basis of any reminder strategy. A structured process and operating environment allow those responsible for managing and controlling the credit situation of clients to work within a predetermined and consistent framework. An example? A structured strategy makes it possible to define an appropriate due date plan for certain categories of clients and to send reminders at regular intervals, maximizing the likelihood that the communication will reach the user at the most “appropriate” time. 

Thanks to these advanced reminder processes, clients recognize the structured nature of the company. As a result, the possibility of processing payments and overdue balances is reduced. In addition, companies can rely on more accurate tools to identify friction points along the workflow.

In summary — as we have already explained in depth on the topic of managing outstanding payments for the utility world — we can say that there are four steps to structure a careful reminder strategy: 

• use analytics tools to follow and document credit control and monitoring procedures, to report collections, and to have a synoptic vision of the actions carried out and those to be planned;
• automate processes, streamline procedures, eliminate the downtime typical of manual activities, allow the relocation of resources to truly valuable activities, and intervene promptly on insolvency situations. In recent years, dunning has benefited enormously from digital evolution. Today, automation is in most every company’s modernization plans, and many have integrated the activities of credit management with some innovative technologies, such as automatic and centralized subscription systems and electronic billing software;
• enable cross-functional teams to involve all relevant departments in credit governance, eliminating the risk of misalignment between business functions;
• adopt a customer-centric approach that, based on the specific operations of the debt collection process, determines the form and content of the language used in communications with customers (for example, in the way bills, reminders, and invoices are created and distributed).

2. Focus on communication with the customer

Once the reminder strategy has been structured and is in place, you can focus on implementing the dispute management processes. At this stage, the objective is to take charge of and analyze the problems encountered during the debt collection process. These are critical issues relating to the relationship with clients that often involve brand-consumer communication. Let’s try to go deeper into the three aspects that define this dimension in the context of credit collection:

1. The involvement of different departments. The themes of credit management and recovery of outstanding receivables do not exist exclusively in the final moments of the business relationship, i.e. upon the invoice or payment request. Instead, they represent complex and multi-faceted phenomena in the medium and long term and therefore involve various business functions.
2. Omnichannel. The advent of digital has inevitably multiplied the channels and formats through which the debt collection process can unfold. 
3. The increase in available data. A growing amount of information from a variety of sources, suitably organized and interpreted, is fed into the business processes of credit management, at every level.

To sum it up: the involvement of different business functions, the transition to omnichannel, and access to an enormous amount of data involve an additional effort for companies, private or public, who are called upon to rethink their reminder strategies so as to make them clear, understandable, and easily internalized by all those involved. Only in this way is it possible to avoid disconnection or misalignment on the type of approach and languages used and to be able to predict, understand, and resolve any disputes.

The relational and communicative aspects are therefore central in the design and construction of a process of solicitation that can be seen by the client as a positive experience. Today, a good customer experience is essential for all organizations. 

At the center of the solicitation strategy: a better customer experience

Attracting and retaining customers in an ultra-competitive business environment is no small feat, but companies that ignore the importance of providing an effective and fluid customer experience may end up losing ground to the competition. In this context, a careful and well-structured solicitation strategy can also play a very important role in customer retention.

According to the Zendesk Customer Experience Trends Report, many of end consumers each year say they need to “commit” to continue buying from the brands to which they are loyal. This means that a customer experience that doesn’t live up to expectations can have dramatic results on the brand’s reputation and result in a disaffection that is hard to recover. In addition, the switch phenomenon, which sees the transition from one supplier to another, is made increasingly easy and immediate by the familiarity with which people now juggle effortlessly through a purchase path crowded with physical and virtual touchpoints. That’s why it’s not surprising to see the statistical evidence from Zendesk, according to which half respondents would only need a “bad experience” to switch to a competitor.

Among the reasons that can compromise, break, or even irreparably damage the attitude of a loyal customer are the increase in prices and taxes, the lack of recognition in the brand identity of the company, and even physiological dynamics of the competition. So far, these are general causes that can be applied transversally to any sector, B2B or B2C. However, if we talk about non-payment and dunning, it can happen that a user who has found himself in the condition of “bad payer” for an extended period will probably change companies in any case.

Thanks to a consolidated reminder process, built according to communication rules based on transparency, immediacy, and listening, it is possible to use the information acquired on customers’ payment habits and integrate it into other credit management processes. The external data collected can, for example, be used to determine whether customers are high or low risk or can be used to segment customers into homogeneous groups, thus determining differentiated payment terms, discounts, promotions, and thus fostering the generation and maintenance of solid relationships of trust.

Personalized reminder strategies to build customer loyalty

In a previous post on web 3.0, we asked: what is the decisive element for customer satisfaction, and therefore loyalty? As in this article, the answer can only be one: the decisive element is personalization. In order to begin a virtuous process that proceeds from personalization to customer retention, the first step is to optimize the strategies of collection, selection, and qualification of its users’ data. It’s only by digitizing their Customer Base that companies can “really get to know” the individuals who are going to form their target. 

If we talk about dunning process, personalization is an unavoidable step. Customer Service supported by advanced technological tools and able to enable a truly bi-directional and interactive conversation allows to reach a series of vital objectives: 

• to build and return a coherent public image through a complete omnichannel (email campaigns, mobile apps, social presence);
• reach the customer at the times and in the ways that best persuade them;
• provide the customer with all the information necessary to make a decision;
• to help the customer to proceed with the payment of an outstanding debt, enabling him to resolve his debt situation in a simple, transparent, and respectful way.

No customer would want to be “harassed” by payment requests. That’s why the implementation of these strategies will allow you to significantly improve the management of payment reminders and dunning process, with positive consequences on the retention rate. Losing customers is one of a company’s top concerns, therefore, you must do everything possible to avoid it.