What is SaaS dunning, and why does it matter?

In SaaS, there's an often overlooked aspect of business that can make or break your bottom line: Dunning. 

But what is dunning exactly?

Picture this: A customer loves your product, but their payment fails due to an expired credit card. Without dunning, you might simply cancel their subscription, losing a valuable customer.

However, with a smart dunning strategy in place, you can reach out and revert the situation. You’ll remind them to update their payment details and keep them happily subscribed. It's a win-win scenario for both parties. 

In this article, we’ll explain the concept of SaaS dunning. By the end of this guide, you’ll know why businesses use dunning to keep their revenue flowing and their customers happy.

Here’s a quick glance at the topics we’ll cover: 

• How dunning works and how it’s handled in SaaS 
• The steps of the dunning process and tools that you can use 
• An explanation of why SaaS businesses use dunning and its key benefits
• A rundown of the most common SaaS dunning management strategies today
• Industry-standard best practices for effective SaaS dunning
• Potential hurdles during the dunning process and how to overcome them

Let’s get started with this article’s central question. 

What exactly is dunning?

SaaS dunning is the process businesses use to follow up on unpaid invoices or failed payments. While the term "dunning" may evoke images of aggressive collection tactics, in SaaS it has evolved into a more customer-centric and automated process.

Think of it as a friendly nudge, or a series of nudges, reminding your customers. It’s like telling them, "Hey, we noticed your payment didn't go through. Can you take a look?" 

It's a proactive way to tackle the inevitable hiccups with recurring payments, such as credit card expirations or insufficient funds.

Dunning in SaaS

In SaaS, dunning has evolved into a process with the goal of not just collecting payments but also retaining customers. Here's how it typically plays out:

1. The initial payment failure: A customer's payment doesn't go through. This could be due to various reasons, from an expired card to a simple processing error.
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2. The gentle reminder: The dunning process kicks in with an automated email or notification. This message is friendly and informative. It lets the customer know their payment failed and provides a way to update their payment details.  
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3. Follow-up reminders and escalation: If the payment issue isn't resolved, a series of follow-up reminders are sent. The tone of these messages may gradually shift from friendly to more urgent as the due date gets closer.
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4. Final notice and account actions: If all attempts fail, a final notice is sent. This notice will inform the customer that their account may be suspended or canceled if the payment issue isn't resolved promptly.

Tools and tech used for dunning

The backbone of modern dunning is automation. Instead of manually chasing down payments, specialized software handles the heavy lifting. 

Popular options like Churnkey and Baremetrics offer a range of features. These go from sending out those initial reminders to managing complex retry schedules. Some even analyze customer behavior to optimize communication.

These tools integrate with your existing billing and payment systems, such as Stripe or Braintree. This guarantees a smooth, behind-the-scenes process. It helps keep your revenue flowing and your customers happy.

Benefits of dunning for SaaS businesses

Dunning might sound like a dry, back-office task, but it can bring numerous benefits to SaaS companies. Let's unpack why SaaS dunning management matters so much:

1. The cash flow lifeline: Think of dunning as your financial first responder. Proactively addressing failed payments guarantees a steadier stream of revenue. Fewer overdue accounts mean a healthier bottom line. This consistent cash flow is the lifeblood of any business, fueling growth and stability.
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2. Customers stick around: Ever forgotten to update your credit card info and lost access to a service you love? Dunning prevents this scenario by opening a dialogue with your customers. Instead of canceling their subscription, you give them a chance to fix the issue.
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3. The efficiency engine: Dunning automation takes the grunt work out of chasing payments. This frees up your team to focus on more strategic tasks. Plus, automated systems are less prone to errors. The result is a smoother experience for both you and your customers.

Bonus benefit: Data-driven insights

Beyond the immediate benefits, dunning gives you insights into your customer base and payment patterns. This data can help you spot churn risks, optimize your pricing, and even find opportunities for upselling or cross-selling.

Common dunning strategies

There's no one-size-fits-all SaaS dunning strategy. A successful approach often involves a combination of tactics tailored to your business and customer base. Let's take a look at some tried-and-true methods:

1. Automated email reminders

What it is: A series of pre-written emails automatically triggered when a payment fails. These emails start off gently, simply notifying the customer of the issue. As time goes on, the tone may become more urgent, with instructions on how to update payment information.

Why it works: Email is a convenient and scalable way to reach a large number of customers. Automation guarantees timely communication without adding to your team's workload.

2. SMS notifications

What it is: Text messages sent to customers alerting them of payment issues.

Why it works: SMS messages often have higher open rates than email. This means they are a great way to grab attention quickly. However, they should be used sparingly and with the customer's consent. The last thing you want is to be perceived as intrusive.

3. In-app notifications

What it is: Messages displayed within your SaaS platform to notify users of payment problems.

Why it works: In-app notifications offer a subtle yet effective reminder while the customer is actively using your product. They can be customized to appear at specific times or under certain conditions.

4. Phone calls

What it is: Direct communication with customers via phone to discuss and resolve payment issues.

Why it works: A friendly phone call can be really effective, especially for high-value customers or complex situations. It allows for real-time problem-solving and builds rapport. However, it's not always scalable for large customer bases.

5. Escalation protocols

What it is: A structured plan that gradually increases the intensity of reminders as the payment remains overdue. This might involve moving from email to phone calls or involving customer support or collections teams.

Why it works: Escalation protocols mean that every customer gets the attention they need. Of course, you’re always respecting their time and avoiding unnecessary pressure early in the process.

Best practices for effective SaaS dunning

SaaS dunning goes beyond just sending reminders. It's about crafting a positive customer experience while ensuring you get paid. Here are some tips to hit the right note:

• Personalization is key: Nobody likes receiving generic, robotic messages. Address your customers by name, reference their specific subscriptions, and acknowledge previous communications. Show them you see them as more than just an invoice number.
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• Timing is everything: Don't bombard customers with reminders the moment a payment fails. Start with a gentle nudge a few days later, then gradually increase the frequency.
  
  Consider your customers' time zones and typical usage patterns to maximize response rates. A well-timed reminder can make all the difference.
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• Offer options, not ultimatums: Give your customers choices. Offer many payment methods (credit card, Paypal, bank transfers, etc.) and even flexible payment plans for larger invoices. The easier it is for them to pay, the more likely they are to do so.
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• Keep it clear and concise: Avoid jargon and lengthy explanations. Your message should be easy to understand at a glance. Clearly state the issue, the amount due, and the steps to resolve it. Simplicity is your friend.
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• Track your progress, learn, and adapt: Monitor how your dunning efforts are performing. Are certain messages getting better responses? Are specific customer segments more likely to have payment issues? Use this data to refine your strategy.

Following these best practices lets you create a dunning process that recovers revenue. Most importantly, use these tips to strengthen your customer relationships. Remember, the goal is to keep your customers happy and subscribed, not just to collect payments.

Potential challenges with SaaS dunning

While dunning is a valuable tool, it's not without its hurdles. Let's address some of the common stumbling blocks:

The possibility of alienating customers

Nobody likes being reminded of unpaid bills. Too many notifications or an overly aggressive tone can irritate customers. It could potentially lead to churn.

The solution: Strike the right balance between persistence and politeness. Personalize your communication. Offer self-service options for updating payment information, and then make it easy for customers to contact you if they need help. Remember, empathy goes a long way.

Payment gateway issues

Payment failures aren't necessarily the customer's fault. Technical glitches with your payment processor can disrupt the process. This eventually leads to unnecessary dunning attempts.

The solution: Choose a reliable payment gateway and monitor it regularly for any issues. Have a plan in place to quickly address any problems that arise and communicate any disruptions to your customers promptly. Transparency builds trust.

Legal and compliance

Dunning practices must comply with various laws and regulations. Think consumer protection laws and data privacy rules like GDPR in Europe and CCPA in California. Failure to do so can result in legal issues and damage your reputation.

The solution: Familiarize yourself with the relevant laws in your region. Make sure your dunning process adheres to them. Consult with legal counsel if needed, and be transparent with your customers about your policies. Compliance is essential for ethical business practices.

Remember, dunning is a delicate balancing act. It's about recovering revenue without alienating your customers. 

Why dunning matters for SaaS businesses

As stated before, the importance of dunning in SaaS goes far beyond just revenue collection. We’ll now dive into the reasons it's crucial for your success:

Maintaining revenue flow

For SaaS companies built on subscriptions, a steady revenue stream is key. Even a small percentage of failed payments can add up over time, creating a significant dent in your revenue. 

Dunning acts as a helpful reminder, helping you make sure that payments come in on time. It also plays an important role in reducing the risk of those dreaded overdue invoices. A smooth, predictable cash flow means you can confidently invest in growth and innovation.

Improving customer relationships

When a customer's payment fails, it's easy to see it as just a transaction gone wrong. But dunning offers an opportunity to show you care. 

By reaching out promptly and offering help, you show that you value their business and are willing to go the extra mile. This proactive customer service can turn a potentially negative experience into a positive one. It’s about fostering sustained customer loyalty and trust. 

Reducing churn

Involuntary churn is a silent killer for SaaS businesses. Dunning acts as a safety net, catching these customers before they slip away. By addressing payment problems head-on, you give them a chance to stay on board. This saves valuable revenue and also preserves the hard-earned customer relationships you've built.

Next steps

You now have an overview of SaaS dunning — what it is, why it's crucial, and the strategies that make it successful. 

So, what's next?

• Audit your current process: Take a close look at how you handle failed payments. Are there any gaps or areas for improvement?
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• Choose the right tools: Explore the range of dunning software options available. Strive to find the one that best suits your business needs and budget.
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• Craft your dunning strategy: Develop a clear, step-by-step plan. Build one that outlines your communication approach, escalation protocols, and payment recovery methods.
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• Prioritize personalization: Remember, your customers are people, not just invoices. Craft personalized, friendly messages that show you care.
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• Monitor and adapt: Keep a close eye on your dunning performance metrics. Use this data to refine your strategy over time for optimal results.

Armed with this knowledge, you're well on your way to implementing a dunning strategy. Especially one that not only recovers revenue but also strengthens customer loyalty. Don't let those missed payments slip through the cracks.