What Is a Dunning Letter? Purpose, Elements & Progression

A dunning letter is a formal written communication sent by a business to a customer with an overdue invoice. Its main purpose is to remind the customer of their outstanding debt and to request prompt payment.

Understanding Dunning Letters

These letters serve as a tool within accounts receivable management, prompting payment for overdue invoices and helping businesses maintain consistent cash flow. A dunning letter is a formal notice sent when an invoice has not been settled by its due date. It requests payment before further collection actions become necessary, helping businesses recover outstanding debts while aiming to preserve the relationship with the customer.

Dunning is the process of sending reminders to customers with overdue invoices, encouraging timely payments and reducing outstanding accounts receivable. Unlike informal payment reminders, dunning letters signify a more formal stage in the accounts receivable process, often used when initial attempts, such as emails or phone calls, have not resulted in payment. The letter conveys a sense of urgency, highlighting the importance of settling the balance.

Key Elements of a Dunning Letter

An effective dunning letter includes specific details to encourage payment while maintaining a professional tone. It typically begins with the sender’s business name and contact information, along with the recipient’s name and address. The letter must clearly state the outstanding amount, the original invoice number(s), and the initial due date(s) for the payment. Providing specific instructions for making payment, such as available payment methods or a payment portal link, removes potential barriers to resolution.

The communication should also include a clear call to action, such as “Please remit payment immediately” or a new payment deadline. Some dunning letters may mention potential late fees or interest charges, along with any consequences of non-payment, though these are often introduced in later stages of the dunning progression. Maintaining a professional and factual tone throughout the letter is important.

The Dunning Letter Progression

Dunning letters are typically sent in a progressive series, with each subsequent communication increasing in urgency and formality. This phased approach helps manage collections while aiming to maintain positive client relationships. The initial letter often serves as a gentle reminder, sent shortly after the invoice becomes overdue, perhaps within 1 to 15 days. This first notice is courteous, assuming the customer may have simply overlooked the payment.

If the initial reminder does not result in payment, a second notice is sent, usually becoming firmer in tone and sent when the invoice is further past due, often between 16 to 30 days. This letter might more explicitly state potential consequences, such as late fees or service restrictions. The final demand letter is typically the last step before escalating to more serious collection efforts, such as involving a collection agency or pursuing legal action, and is sent for invoices 30 to 60 days or more past due.