What is Dunning? The Complete Guide to Getting Paid

Dunning is the process of systematically contacting customers to collect overdue payments. The term covers everything from a friendly payment reminder to a formal legal demand, and it's one of the most important processes in B2B business.

If you invoice other businesses, you already do some form of dunning. You just might not call it that.

More than half of B2B invoices in the US are overdue at any given time. In Europe, the numbers are similar. The businesses that collect most of their money aren't the ones sending the most emails. They're the ones with a structured dunning process that escalates from reminders to conversations to formal demands.

What does dunning mean?

The word "dun" means to make persistent demands for payment of a debt. It's been part of English since at least the 17th century. One popular theory traces it to Joe Dun, a London bailiff so effective at recovering debts that "dunning" became synonymous with the act itself. Other etymologists connect it to older Germanic roots meaning to thunder or make a loud demand.

In modern business, dunning means the entire cycle of communication aimed at recovering money owed: reminders, notices, follow-up calls, formal demands, and eventually escalation to collection agencies or legal action. It's a core part of accounts receivable management.

What dunning is not: it's not debt collection in the legal sense. Dunning is what happens before you hand an account to a third-party collector. It's first-party collection. You or your team reaching out to your own customers about their own invoices.

What is a dunning letter?

A dunning letter is a written notice sent to a customer about an overdue payment. Traditionally, these were physical letters mailed on company letterhead. Today, most dunning letters are emails, though the structure hasn't changed much.

A standard dunning letter includes:

• The customer's name and account information
• Invoice number, date, and amount owed
• The original payment terms and due date
• A request for payment by a specific new deadline
• Payment instructions (bank details or payment link)

The tone of a dunning letter changes with time. The first notice at 7 days past due is conversational: "We noticed this invoice is outstanding. Could you take a look?" By 30 days, it's direct: "This invoice is now 30 days overdue. Please arrange payment within 7 days." At 60+ days, it becomes formal, referencing interest charges and potential next steps.

Most businesses send between two and four dunning letters before escalating to stronger measures. The problem? Email open rates for collection notices sit between 20% and 40%. More than half your customers never see the dunning notice at all.

The dunning process: step by step

A dunning procedure is the scheduled sequence of actions a business takes when an invoice goes unpaid. Think of it as a playbook: on day X, send a reminder. On day Y, make a call. On day Z, issue a formal demand.

A typical B2B dunning procedure follows this pattern:

Day 1-3 past due: First payment reminder. Assume good intent. Attach the original invoice so the customer doesn't need to dig through their inbox.

Day 7-14: Second reminder. More direct tone. Reference the previous notice and set a clear payment deadline.

Day 21-30: Phone call. This is where recovery rates jump. A conversation uncovers the reason for non-payment (a lost invoice, a dispute, cash flow trouble) and resolves it on the spot.

Day 30-45: Formal payment demand. Under the EU Late Payment Directive, B2B creditors can charge statutory interest and claim a minimum of EUR 40 in recovery costs from this point forward.

Day 60-90: Final demand and escalation warning. Recovery odds drop significantly at this stage. Industry data shows the probability of collecting an overdue invoice falls sharply past 90 days.

Day 90+: Referral to a collection agency or legal proceedings.

The businesses with the highest collection rates aren't doing anything unusual. They're following their dunning procedure consistently, for every invoice, every time. The invoices that get written off are almost always the ones nobody followed up on.

Dunning letter vs dunning call

This is where most dunning processes fall apart. Dunning letters and emails are easy to send at scale. Phone calls take more effort. So most businesses default to email and leave money on the table.

Phone-based dunning collects at roughly double the rate of email alone. A dunning call creates a real conversation. The customer has to respond. You identify the actual reason for non-payment, offer a payment plan, resend the invoice on the spot, or get a verbal commitment to pay by a specific date.

A dunning notice sitting unread in someone's inbox does none of that.

Why the gap? It comes down to psychology. A phone call triggers reciprocity (the social urge to respond when someone reaches out personally) and commitment (people follow through on what they say out loud more than what they read silently). Email lets the customer postpone indefinitely. A conversation forces a decision.

The tradeoff has always been cost. An AR clerk can make a limited number of calls per day, and their salary isn't cheap. So most SMBs only call about their largest overdue invoices. The smaller ones (the $500 invoices, the $1,200 ones) just age quietly until they're written off.

How AI is changing dunning

The gap between "email is cheap but weak" and "phone calls work but don't scale" is closing. AI voice agents can now handle dunning calls autonomously, making the phone call as scalable as sending an email.

In practice, an AI agent calls the customer, explains which invoice is overdue, listens to their response, and adapts. Customer says they never received the invoice? The agent sends it via SMS during the call. Customer agrees to pay by Friday? The agent confirms and logs the commitment. There's a dispute? The agent captures the details and routes them to the right person.

The tone adjusts automatically based on how overdue the invoice is. Friendly at 7 days, professional at 30, firm at 60. Every overdue invoice gets a call at every stage, not just the large ones.

This isn't replacing the dunning process. It's making the most effective part of it (the phone call) available for every invoice in the portfolio. Automated dunning used to mean scheduled emails. Now it can mean scheduled conversations.

For businesses stuck between writing emails that get ignored and making calls they don't have time for, dunning software that handles the conversation is the piece that was missing.

Key takeaways

• Dunning is the systematic process of contacting customers to collect overdue payments, from first reminder through formal demand
• Dunning letters are the standard tool, but email open rates mean most go unread
• A structured dunning procedure with escalating tone and channel is the single biggest factor in collection rates
• Phone-based dunning collects roughly twice as effectively as email alone, because conversations create commitment
• AI voice agents are making phone-based dunning scalable for the first time, closing the gap between email automation and human calls