Dunning Management: Take Charge of Your Failed Payments

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Dunning management shouldn’t be taken lightly.

If you have anything to do with a SaaS company, you know that SaaS churn is everyone’s worst nightmare.

You could be running a perfectly organized business with the soundest of business strategies and yet, there’s always going to be customers who cancel their subscriptions.

While we’ve written about how you can motivate your customers with free trials or freemium options, and how you can reduce churn, there’s a second category of cancellations that you can’t even see:

Involuntary churn.

How are failed payments and involuntary churn connected?

Enter dunning.

While we’re jumping through hoops to retain our users and reduce our churn rate below the deadly 5% monthly, we’re often forgetting about payment-related problems which de facto cancel our SaaS services without the customer’s input.

Payments can fail due to a variety of reasons, such as:

  • Credit card limits
  • Insufficient funds
  • Blocks made by banks
  • In B2B, expense policies

There’s a lot that can go wrong.

However, if you want to reduce the harmful effect of failed payments on your SaaS company, you shouldn’t be looking into the causes too much. Failed payments are going to happen.

What you can do is improve the process regulating them. And that leads us to…

What is Dunning Management?

In a nutshell, dunning management is the management of payment complications. It’s the process that regulates how your company will behave in that case.

Will you simply cancel the invoice? Will you email the customer whose payment failed? Will you define the causes behind each failed payment?

These are the questions regulated by your SaaS’ dunning management process.

The way you set up your company’s dunning process will define how much time you waste on each failed payment, and which methods you use.

Now, you can do this manually if you have 10 customers. But as your SaaS grows and as you start to focus on customer retention as much as you focus on customer acquisition, you’ll notice that it’s becoming unproductive to chase after unpaying clients.

The churn-reducing part of this process is that it helps clarify the situation, allowing you to improve your customer retention rate.

Keep in mind that most of the people whose payments failed are still interested in doing business with your company. There are just complications.

Implementing dunning systems can help you resolve those complications. Without wasting your time.

Ways to Leverage Dunning management for Failed Payments

If you’re new to dunning emails or just leveraging basic dunning practices from your payment process, here are a few ways to take it to the next level.

You can save loads of time with dunning management. Time-saving that reduces churn with dunning management can occur at two points when you’re doing business:

1) Before the failed payment, and

2) After the failed payment

It’s up to you where you leverage them. We recommend avoiding pre-dunning but our software offers you both options. 

For example, you can send out reminder notices a few days before the payment is due to make sure that customers have enough funds for the payment to go through.

If a customer’s payment still fails, set up a system that automatically tries their card again within a few days. In case the payment still doesn’t clear even after your dunning system has tried again, schedule notifications.

Most billing systems allow you to customize your communication after the payment has failed, so you can schedule a retry, emails, notifications, and tailor your approach to what your user base responds best to.

Again, we built Weav to do all of the above for you.

Reducing voluntary and involuntary churn

Just like in marketing, understanding your customers is everything. If you count a customer whose payment failed towards customers who churned out, you’re not seeing accurate churn data, and it could impair your future efforts.

In B2B, companies face payment failure rates of 9% monthly. In B2C, the rate is 14%.

That’s a lot of customers who (most likely) didn’t cancel their subscriptions on their own.

But if your current process is to just cancel subscriptions as soon as payments don’t clear on the given day, that’s the data you’re getting. This revenue can make up about 7% of your revenue, which is a lot to lose when you could be recovering it instead.

Dunning management helps you take charge of those failed payments, and recover the revenue that you would’ve counted towards a loss instead.

When we’re talking about churn, we also shouldn’t forget the effect subscription cancellations (after just one failed payment) have on customers. It can come across as poor customer service to disable them from accessing your software just because of one payment failure.

With dunning management, everything’s automated, so the customers don’t even have to get involved in the process of resolving the failed payment. Instead, you’re taking care of everything for them.

Now that’s good customer service that reduces voluntary churn.

Communicating with customers

When it comes to finances and customer support, it’s best to tread lightly.

You should pay special attention to emails that your customers will get after a failed payment (or after a failed retry).

It’s best to keep it simple and explain what happened, and what possible causes are. Remind your customers of the benefits your software provides, and instruct them on what to do next.

Since failed payments usually happen due to invalid payment information (card expiration, better payment option, etc.), it’s good to direct your customers to the page on your website where they can update their information and preferences.

If you’re not getting a response from your customers even after a few emails, you should try calling them. We get a lot of emails every day, so your email might have gotten lost.

If you’re tracking opens (which we definitely recommend) and the customers opened your emails every time without taking action, it may be time to add them to the “churned out heap” and focus on retaining other customers.

Dunning only works if you’ve defined your standards:

  • How many times will you tolerate failed payments, and try again?
  • What methods will you use to notify customers?
  • What retry rules will be applied to different customer types?

Even though best benchmarks and standards are implemented only after thorough testing, it’s good to have simple guidelines when starting your dunning process implementation. 

Otherwise, you’ll see no benefits and you’ll simply go back to where you were: struggling with failed payments.

And if you’ve made it your mission to defeat churn at your SaaS, use dunning management and turn those failed payments into recovered revenue.

About the author

Weav Team

Hi, I'm Ollie, the octopus! The leader of the Weav team (obviously). I spend my days dreaming about how I can help brands become more human with their customers. When I'm not doing that, I like to see how long I can hold my breath and brag about how I have 3 hearts (it's true).

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By Weav Team