A dunning letter is a written notification sent by a business to a client informing them that an amount they owe is overdue for payment.
Dunning Letter Details
The word dunning comes from a 17th-century verb to dun which means "to press for payment." The origin of the word is obscure but still applicable. A company that is owed money will typically send a dunning letter when a customer or client is overdue. A company will send dunning letters at fixed intervals—every thirty days, for instance—until they have paid the amount due. If, after the company sends a series of letters, the customer still has not settled the debt, the company may take legal steps to ensure payment.
The letters' tone will change as the series progresses, becoming more demanding with each one the company sends. In a large company, a computer may generate these letters automatically as debts fall past due. The form of each successive letter may vary, using different texts, which allows the company to evaluate which version is most successful in achieving payment. A dunning letter should always state the amount owed for the goods or service the company provided. It will also include the date of the original invoice, whether there are penalties or interest payable above the original amount, and other payment options. A dunning letter should not use language which the customer can construe as threatening or abusive.
Dunning letters are a cheap and usually effective way of recovering money owed, but their effectiveness diminishes over time. If a client does not respond to the first one, then the possibility that they will respond to further letters diminishes. At that point, the company needs to consider another way to ensure the settlement of the debt.
Example of a Dunning Letter
Two months ago, Jenny bought a washing machine from Dragon Appliances with the understanding that she would pay for it in two installments. She made the first payment, as agreed, but not the second. Dragon Appliances sent her a dunning letter. This first letter was polite and friendly because Dragon did not know why she didn't make the payment. It was certainly possible that Jenny had simply forgotten to pay, had been ill or on vacation, and would when reminded, settle the debt.
Jenny received the letter a couple of days later. At this point, Jenny had three courses of action available to her. She could, as most people do when they receive the first reminder, have paid the sum she owed. If she was having problems paying the amount, she could have contacted Dragon and explained her situation in hopes that Dragon would offer an alternative means of payment.
Her third option was to ignore the letter—which is what she did. Dragon sent successive letters that were increasingly firmer in tone but no more successful than the first. Finally, the company informed her that she left them with no alternative but to take legal action and took back her washing machine.