How to Recover Lost Revenue with Smart Dunning Management

Recurring streams of revenue is the lifeblood of any subscription-based business model. However, a hidden danger lurks within this model: payment failures. These declined payments and transaction failures are a normal occurrence. Even a small percentage of failed transactions can significantly impact a business's bottom line. To put this into perspective, research shows that a 2% monthly payment failure can erode 22% of a company's annual revenue.

Payment failure is a common issue in e-commerce, requiring timely intervention for resolution. Some of the prominent reasons for payment failure include:

• Credit Card Expiration
• Lack of funds
• Wrong billing information

As your business grows, and subscriber base increases, it becomes an overwhelming task to manage payment failures. Thus, using recurring billing software with an automated workflow to handle failed payments and recover funds makes a lot of difference. An efficient dunning system automatically gets into action when a failed payment arises, and takes follow-up action to recover the amount.

Keep reading as we explore that concept further.

What is a Dunning Management System?

Dunning management is a preset payment recovery process organizations use to manage overdue payments. It is designed to identify those customers who have missed their payments or have a high chance of defaulting. A dunning management system saves time and effort by sending automated reminders like emails, texts, and notifications to complete or update payment information to prevent payment failures.

The primary goal of a dunning management system is to improve the efficiency of collections, reduce manual effort, and enhance cash flow management. A smart dunning management system also reduces passive churn. Passive churn is a problem that some e-commerce companies ignore. Yet, it hampers revenue big time.

How Does Dunning Management Work?

The subscription business model is on the surge and DTC companies have leveraged this model to increase revenue, streamline operations, and maximize customer engagement. However, reaping the full dividends of the subscription economy requires efficient payment collection. Specifically, you want to prevent payment failures and overdue payment situations.

Dunning management helps businesses handle overdue payments. By systematically escalating communication—from gentle reminders to more urgent notices—companies address payment and prevent liquidity issues.

Let's examine the processes further with the example of Loop Subscriptions effective dunning management system:

1) Effortless Failed Payment Recovery

If a customer’s payment doesn’t go through the first time, the dunning management software steps into action. It retries the failed payment, and it can do this not over one but two billing cycles

The merchant also has the liberty to configure the number of attempts in the system according to their policies. If a payment fails, the dunning system automatically tries recovering failed payments 2 to 4 times over the next two billing cycles.

With the system, the merchant can give the leeway to his customers on failing to make payment which could be any reason such as not maintaining sufficient balance at a particular date (say 1st of a month). You, the merchant, can even choose the period within which you want the system to make retries, say after 4 days or 14 days after the last attempt. The system keeps trying to collect the payment so you don't lose out on any sales.

2) Identifying and Reporting High-risk Customers

The world of e-commerce payments is filled with underlying threats. A smart and proactive dunning system identifies and displays high-risk customers for merchants. Those customers considered to be high-risk fall under the following categories:

• Buyers with expired credit cards
• Buyers with credit cards expiring now
• Buyers with defaulted payment history

Your CX team can quickly find these customers and send them a friendly email to update their payment information. That way, you pre-empt going against payment regulations by processing payments with expired cards, which can lead to heavy losses when the cardholder files a false chargeback claim.

3) Providing Advanced Payment Failure Analytics for Proactive Measures

Payment failures are detrimental to a company’s financials. That's why you must tackle it proactively. Dunning management systems like Loop Subscription understand this and provide DTC brands with advanced analytics breaking down all the reasons payments might not go through.

Such insightful data allows you to deliberate the reasons for failed payments and fix each problem accordingly, not throwing on a blanket solution and hoping something works.

For example, if several payments fail because of expired credit cards, you can use the report to find those customers and send them a friendly reminder to update their information.

4) Automate Payment Reminder Emails

Smart dunning management systems allow you to set up automatic emails to prompt subscribers about failed payments. The platform also allows customers to fix whatever issues they have from preventing the payment and keep the subscription going.  You always have the option to divert these payment failure events to third-party apps like Klaviyo, Attentive, Recart, or Omnisend.

5) Weekly Reports on Subscriber Payment

Dunning management system enables companies to set up automatic weekly alerts. It sends DTC teams their upcoming subscription payments for the next week making keeping track of subscriptions a breeze. This data can be downloaded easily as a regular file (a .csv file) so you can use it to run personalized campaigns for specific customers every month.

6) Interactive Dunning Management System

The interactive dunning management dashboard tracks and reports key revenue information such as:

• Payment attempts
• Revenue received
• Revenue lost
• Revenue recovered

These metrics provide a comprehensive view of your company's financial stability and revenue prospects. They help you optimize revenue collection processes, and support informed decision-making for future growth and risk management.

Best Dunning Strategies to Reduce Customer Churn

Customer churn is the rate at which customers stop doing business with your company. High customer churn is a nightmare. Nobody wants that.

Reducing churn is primal for maintaining steady revenue and long-term growth. Let's evaluate the best dunning strategies for reducing customer churn and improving revenue collections.

1) Adopt a non-confrontational approach

It can be a distasteful feeling when customers miss their payment for some reason or another. Yet, taking an aggressive approach or castigating your customers for doing so will not make the recovery process easy. It could even lead to losing the customer forever.

A softer approach during the recovery process ensures your customers do not feel nagged to repay their dues.

For example, PatchBrand, a beauty and wellness brand that wants to help you feel your best, took an easygoing approach to managing churn. They first let customers know about failed payments, and assure the customer that they will keep trying to recover the payment without hampering the services going. They then add a Customer Portal Link for the customer to update their payment information.

Such a proactive approach gives the customer a right to the benefit of the doubt. They feel valued, considering that the non-payment could have been because of card expiry, which is one of the biggest reasons for involuntary churn.

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2) Personalize engagements

It doesn’t sound like a big deal, but addressing your customers by their name creates a good impression. It also impacts how the customer perceives dunning.

Personalization has more to it like loyalty status, payment history, preferences, status, and subscription duration. There’s a difference between a customer who’s missed his payment once in two years and one with a history of missing it.

3) Automate payment failure communication

As businesses grow, it becomes obvious that manually reminding customers to update their billing information through emails and SMS becomes a tedious task that requires enormous effort and staff. Therefore, it becomes critical to automate these follow-ups saving the company time and ensuring that messages are delivered on time. With this consistent and proactive approach, you will recover more missed payments and utilize your time for other important stuff.

4) Avoid unnecessary reminders

Sometimes, companies do customer outreach instantly after the failure of a transaction for the very first time. This is not advisable as it can result in a distasteful experience for the customer. It's also worth noting that in many cases the payment issue can be resolved even without informing the customer like in the cases of technical glitches or lags in payment platforms automatically updating card details.

Before letting the customer know, you should at least make one payment retry. This means fewer emails for your customers (no need to worry them right away) and less work for you.

5) Outline future actions to customers clearly

Once the payment has failed and you have informed the customer about the same, ensure that the customer is in sync with the situation. Any good dunning strategy ensures that the customer understands what you want of him.

"Do they need to check their card details, resubmit using a different payment method, or simply do nothing while you check whether there’s a problem at our end?"

The call to action you make should be clear so the customer understands what’s going on and what is expected of them. Otherwise, they will ask the same queries in your customer service inbox and you will be answering them what your dunning solution should have.

6) Provide the multiple payment options facility

It is always a better strategy to offer customers multiple payment options. This helps customers to pay with their preferred payment method, such as credit cards, digital wallets, and ACH. You can also provide them with the option of installment payment plans to make things easier for your customers. It gives them an impression that you are empathetic with them and want to work with them to find a way out instead of just taking a punitive approach.

Final Thoughts on Revenue Recovery with Dunning Management

Operating a subscription business is not an easy nut to crack. You are managing several things simultaneously. You must keep track of payments, customer acquisition, vendor relationships, and business growth. But among all the top priority for any business should be its customers as they ensure recurring revenue.

Therefore, it becomes important to leave no stone unturned in keeping your recurring revenue intact. That's where dunning management comes in! Smart dunning management systems help businesses recover lost revenue and stop customers from leaving because of payment issues. It even frees up your time from chasing payments manually.