Imagine receiving a wake-up call every morning, even on weekends, when you want to indulge in a relaxing morning. Just as this repetitive intrusion can be irksome, so too can generic dunning reminders agitate your reliable customers.
In the realm of accounting tools, dunning processes in Account Receivables are indispensable for nudging customers about impending invoices. However, these reminders often lack personalization, affecting even those who consistently settle payments on time.
According to the 2022 Late Payments Report, 87% of businesses indicate that invoices are typically settled after their due dates. Sending superfluous reminders to customers who consistently meet their payment obligations, lack of personalized emails, or manual processes may agitate a loyal customer and cause delays.
Hence, it's essential to consider what will capture your customer’s attention during busy workdays. Crafting emails that resonate with your customers and not agitate them is crucial.
In this blog, we will dive into the realm of AI-driven solutions, where customer grading based on payment history becomes the compass. Like a tailored alarm clock, AI ensures that timely payers are untouched by reminders, enhancing their experience while promoting efficient business practices.
Dunning in Accounts Receivables is the process of sending reminders to customers who have overdue invoices or pending payments. It's like gentle prompts to ensure payments are made on time.
The dunning process usually follows a sequence of steps, which may vary based on the company's policies and the severity of the overdue payment. Here's a general outline of the dunning process:
Reminder: An initial friendly reminder is sent to the customer shortly before the payment due date. This reminder may simply state that the payment is overdue and encourage the customer to make the payment promptly before or on the mentioned due date.
First Dunning Notice: If the payment is not received after the initial reminder, a more formal dunning notice is sent. This notice may include a stronger reminder about the overdue payment and a mention of potential consequences if the payment isn't made soon.
Second Dunning Notice: If the payment still remains outstanding, a second, more urgent dunning notice is sent. This notice might emphasize the seriousness of the situation and mention that further action will be taken if the payment is not received promptly.
Final Notice: If the previous notices are ineffective, a final notice is sent. This notice may include a clear statement of the consequences of continued non-payment, such as legal action or suspension of services.
Collections and Legal Action: If the customer still does not respond or make the payment, the company might escalate the situation by involving a collections agency or pursuing legal action to recover the debt.
It's important for companies to strike a balance between maintaining a good relationship with customers and ensuring timely payments. Effective dunning strategies can help companies reduce the number of overdue accounts and improve cash flow while maintaining good customer relationships.
Unpaid invoices if left past their due date can pose significant challenges for businesses. Timely payment is crucial for maintaining a healthy cash flow and preventing financial bottlenecks. Let's delve into why payment reminders play a pivotal role in managing Accounts Receivables.
Reducing Days Sales Outstanding (DSO): Unpaid invoices post their due date can accumulate, leading to an increase in your Days Sales Outstanding (DSO). A higher DSO means your company's funds are tied up in accounts receivable for a longer period, impacting your liquidity.
Mitigating Bad Debts: Late payments can result in bad debts, especially if they remain unaddressed for an extended period. Effective reminders can help recover these outstanding payments before they turn into irrecoverable losses.
Preventing Cash Flow Bottlenecks: When customers hold onto payments, it can create bottlenecks in your cash flow, affecting your ability to meet expenses, invest in growth, or take advantage of opportunities.
Optimizing Sales vs. Collections Ratio: An efficient collections process is essential for maintaining a healthy sales vs. collections ratio. Delays in collecting payments can negatively impact this ratio, affecting your overall financial health.
While manual follow-ups have been the traditional approach to collections, they come with their fair share of challenges as businesses scale and customer bases grow. Let's dive into some of the key problems associated with manual follow-ups:
Repetitive Email Composition: Imagine crafting individual emails for tens of thousands of invoices. As your business expands, this manual email composition becomes a Herculean task. Moreover, it's practically impossible to provide comprehensive coverage to all outstanding invoices. This increases the risk of crucial invoices being overlooked or deprioritized due to sheer volume.
Data Gathering and Compilation: When collection agents manually draft emails, they must also gather data from various sources. This data includes details like the total invoice amount, outstanding balance, due dates, and customer-specific information. Manually collecting this data from multiple spreadsheets and tracking systems is not only time-consuming but also prone to errors.
Missed Customer Responses: When manual follow-ups are employed, capturing customer responses becomes a missing piece in the puzzle. Without a centralized system for gathering and tracking customer responses, disputes can linger unresolved, leading to delayed payments and potential increases in bad debts.
The traditional dunning process in Account Receivables done through accounting tools may fall short in engaging customers effectively. These tools lack the flexibility to distinguish between customers who consistently meet their payment obligations and those who may need a nudge. This can cause friction and dissatisfaction among loyal customers who deserve a more tailored approach.
Leveraging AI in your collections process can make a substantial difference by ensuring that your payment reminders not only reach customers but also prompt them to take action.
AI does the “customer risk profiling” based on the vast amounts of customer data, including payment history, behavior patterns, and preferences.
This “Customer risk profiling” empowers AI to differentiate between customers who require reminders and those who don't. High-grade customers often manage their payments effectively and may not need reminders. In contrast, those with lower grades may benefit from a gentle nudge.
This personalized approach ensures that diligent payers are undisturbed, while reminders are thoughtfully directed to those who could use a friendly push.
In the world of dunning, AI emerges as a beacon of progress, reshaping the way businesses interact with their customers. By customizing reminders based on payment history, AI ensures that those who consistently meet their obligations are spared unnecessary notifications. This personalized touch transforms the customer experience, fostering goodwill and loyalty.
The fusion of AI's capabilities with the dunning process paints a picture of efficiency and customer-centricity. As businesses adapt to this transformation, they create a harmonious cycle where timely payments and respectful reminders coexist. With AI at the helm, enhanced customer experiences and optimized dunning processes are no longer a distant dream but a vibrant reality.
