Power of Automated Collections & Dunning

As an early-stage company, you probably track invoices manually with spreadsheets. But as your company grows and adds subscription and usage-based billing models and more customers, the number of invoices you have to track increases exponentially, as does the time required to manage them. Without an automated system in place to keep track of overdue invoices and automate your collections, you'll lose money.

An automated invoice tracking system allows you to send automatic late notices, so you can rest assured that you'll be sending payment reminders to customers promptly. This will allow you to focus on other aspects of your business, and not worry about forgetting to send a payment reminder.

An automated collection platform also helps you gain a clear picture of your customers' risk profiles and helps you route invoices into collections. This creates transparency into customer data and also provides helpful insights that can be used to better price packages, improve customer engagement, and provide tools for customer retention.

What are Automated Collections and Dunning?

Dunning is a method of proactive account management aimed at reducing business’ delinquency. Automated dunning refers to the process of using software programs to handle overdue accounts receivable by sending payment reminders to clients. 

Businesses that manually manage customer collections across a variety of accounts can find it time-consuming and costly to do so, requiring extra personnel and resources. Automated collections and dunning are the most efficient methods for collecting past-due payments.

An automated dunning management system is a customizable system that uses automated dunning messages to let customers know about invoices, payment reminders, collection letters, and email notifications in a consistent manner. Automated notifications can substantially improve cash flow and reduce invoice delinquency.

Challenges of Manual Collections & Dunning 

Collections can be a challenge.  It requires active follow-up by an accounts receivable (AR) team and regular contact with the customer, often by telephone. The manual nature of it means that mistakes are potentially made more frequently than mistakes in AR would be in a system where payments could be captured automatically.

Manual collections can be an obstacle to you too. For every debt that needs to be collected, you’ll have a team of people, who must be compensated. And all this hard work adds up!

Let's look at several ways manual collections can interfere with efficient operations:

1. Limits your ability to grow and scale

Manual processes are difficult to scale and make it challenging for finance teams to execute new collection strategies. Legacy systems and manual processes do not provide the flexibility required to handle huge volumes of customer data and a large number of invoices, making it difficult for finance teams to streamline existing accounts receivables and collections processes.

The finance department has to respond to challenges posed by huge volumes of customer data and calls. They also must contend with multiple invoices for a single account with different due dates or multiple accounts with different pay terms, which necessitates automated dunning.  Handling large amounts of customer data and manually following up with past-due accounts can negatively affect collections processes, creating a lack of scalability. 

Legacy systems and manual processes do not provide finance teams with the flexibility to adapt to changing business demands. They also cannot produce the data required to support the implementation of new collection strategies.

2. Inefficient customer communication

Poor communication with customers, partners, and employees can result in late payments and lost revenue. Without an automated system in place to track data exchange with customers and partners, manage records of sales activities, and send reminders to clients regarding overdue or delayed payments, you're more likely to fall behind on payments and lose customers.

Unstructured and fragmented paper records make it hard for businesses to get a complete picture of how their customers pay them. Customers find it difficult to track the process as they don’t have clear visibility of their overall debt. This leads to further discrepancies, delays in payments, and increased customer dissatisfaction.

3. Poor Collection Management

Poor collection management can lead to higher bad debts. When companies have multiple sources to collect from, they need a well-managed system to manage collections from those different sources. The majority of a collections team's time is spent on calls; however, with limited resources, one must prioritize the high-risk customers—those who have been given ample opportunities to pay up but haven't yet done so.

Poor customer collections call management can affect your business relationships. And if a customer's data isn't updated in real-time, they could receive reminder calls even after they've paid. This not only results in a poor customer experience but can also affect your business relationship with them.

Benefits of Automated Collections & Dunning

If your business sends out regular invoices, then it’s almost a certainty that you will be facing outstanding balances at some point. Rather than dealing with delinquent bills manually, you can put your collections process on autopilot.

Let's discuss some of the benefits of automating this process.

1. Improves Cash flow 

Time spent collecting outstanding invoices is the most important factor in managing cash flow. Automated collections and dunning software can help reduce time-to-cash by automating manual tasks and speeding up collection processes. This allows organizations to focus on other projects while still collecting payments from customers on time, which increases profits and improves cash flow.

Dunning management software reduces time-to-cash by automating manual tasks and speeding up collections processes. It does this by allowing you to set up customizable dunning sequences for each customer, which then sends automated emails out to that specific customer at regular intervals over a period of time.

Manual collections processes can also lead to lost revenue and bankruptcy in some cases if a large number of bills remain unpaid. Automating this process reduces those risks dramatically.

2. Reduces Customer Churn

Automated dunning and collections let you strike a balance between getting paid and ensuring your customers have an optimal experience.

With automated dunning, you can set up email reminders and payment plans to ensure that payments are made on time. Having a robust dunning system benefits both you and your customers. Your customers get more reliable communication about late payments and opportunities for making repayment easier; meanwhile, you'll have a clearer picture of which customers need more attention, which means you can spend more time working with them—and less time chasing down overdue invoices every month.

3. Saves Time

Automated dunning can save your team precious time. When you set up an automated collection system, it will take care of the heavy lifting, triggering various responses such as late fees and notifications to limit, downgrade, suspend or reinstate service, so your team members can focus on other important tasks within the business.

4. Reduces Customer Dissatisfaction 

Failed payments can be a headache to deal with, but automated dunning tools can help make the process easier. If you want to avoid the unpleasant task of manually sending reminders and collecting payment details, an automated service like this can save you a lot of time.

Automated dunning offers a proactive stance in preventing payment failures before they occur, by setting up workflows that allow you to avoid failed payments and the resulting negative experience for both you and your customer.

With a feature like an account updater, you can send pre-dunning alerts to your customer, which provides them with enough time to update their payment information so that the transaction is not declined on their next subscription renewal payment.

5. Payment Retries

Automated collections help businesses recover revenue lost from failed or declined payments. It monitors customers that fall behind on payments and automatically retries the method of payment if it fails the first time around or sends them an email alert so they can update their payment information.

A smart automated billing solution also lets you set up dunning logic to automatically notify customers if they no longer have an active payment method on file. This creates a seamless transaction that often never even registers with the customer, and your billing team doesn't have to get involved.

Final Thoughts

Your business is likely far more complex than you ever imagined. When you put dunning software to work for you, it can save you immense time and effort—and help your bottom line in the process. Your customers will appreciate getting billed on time, and you’ll love how easy dunning software makes your life!

Overall, the impact of automated collections on accounts receivable teams is significant, positive, and something that every company should seriously look into adopting. A well-designed automated collection process can instantly improve your customer engagement and ensure that your customers always have a personalized experience.

If you would like to simplify your billing cycle, LogiSense will greatly enhance your operations and allow you to do more. We invite you to take a closer look at how our billing system can help you by scheduling a call with one of our billing experts.