Dunning Process: What It Is, How It Works, and Real-Life Examples


Dunning is a collection process dating back to the 17th century, involving escalating efforts to recover owed funds. This article delves into the various steps of dunning, its factors, and the important legal considerations.

Dunning: an in-depth exploration

Managing overdue payments and debts is an integral part of running a business. To this end, the process of dunning has been a longstanding practice. Dunning is the method through which business owners or creditors communicate with customers who owe them money for goods or services provided. It encompasses a series of escalating steps aimed at recovering these debts. In this article, we will thoroughly explore the dunning process, including its iterative steps, factors influencing its use, and the legal constraints associated with it.

The iterative steps of dunning

The dunning process typically involves the following iterative steps:

Phone calls

Initially, business owners make phone calls to customers, gently reminding them of the outstanding payments. This serves as a friendly nudge to prompt repayment.

Formal letters

If phone calls don’t yield results, formal letters are sent to the customer, explicitly requesting payment and providing a record of the debt. These letters often include details about the debt, such as the amount owed, due date, and payment instructions.

n-person visits

In cases where letters also prove ineffective, business owners may resort to in-person visits, demanding payment directly from the customer. While this step is more assertive, it is often a last-ditch effort to recover the debt without legal involvement.

Hiring third-party collections agencies

If all else fails, businesses may enlist the services of third-party collections agencies. These agencies specialize in debt collection and can apply additional pressure on delinquent customers. They may use various communication methods and negotiation tactics to encourage repayment.

Threatening legal action

In more severe situations, businesses might resort to threatening legal action to recover their debts. This involves sending legal notices, which often highlight the possibility of court action if the debt remains unpaid. The intention is to persuade the debtor to settle the debt to avoid further legal consequences.

Executing litigation

As a last resort, legal action may be initiated to compel customers to pay their overdue bills. This step typically involves filing a lawsuit against the debtor, which may result in a court judgment if the debtor is found liable for the debt. Depending on local laws, this judgment can lead to wage garnishment, bank account levies, or other methods to recover the owed funds.

Factors influencing dunning

The approach to dunning varies depending on several factors:

Amount of debt

The magnitude of the debt owed often influences the dunning process. Smaller debts may not warrant extensive legal action, while substantial amounts might necessitate it. Businesses carefully evaluate the cost-effectiveness of pursuing legal action against a debtor based on the debt’s value.

Customer relationships

The nature of the relationship between the business and the customer plays a significant role in how dunning is handled. Long-standing, valued customers may be treated differently from newer clients. Businesses are often more inclined to engage in negotiation and consider flexible repayment plans for loyal customers to preserve the relationship.

Length of overdue payments

Businesses also consider how long payments have been overdue. Recent delinquencies might be handled differently from long-standing ones. For example, businesses may opt for milder dunning methods for customers with a brief history of late payments, while persistent delinquencies may lead to more aggressive collection tactics.

Legal constraints

It’s essential to note that most jurisdictions impose strict regulations on debt collection to protect consumers. The Fair Debt Collection Practices Act (FDCPA) in the United States, for example, sets clear guidelines for debt collection agencies. Intimidation and coercion tactics are generally prohibited. Businesses must adhere to these legal constraints to avoid penalties and legal consequences. Violations of these regulations can result in financial penalties, damage to reputation, or even lawsuits filed against the business.


Here is a list of the benefits and drawbacks to consider.

  • Efficient debt recovery: The dunning process increases the chances of recovering owed funds, benefiting the business financially.
  • Clear documentation: The process involves formal communication, creating a paper trail that can be useful if legal action becomes necessary. This documentation is crucial for providing evidence in court if a lawsuit is filed.
  • Negotiation opportunities: Dunning allows for negotiation with debtors, offering an opportunity for them to arrange repayment terms and potentially avoid legal consequences.
  • Customer displeasure: Aggressive dunning tactics can harm customer relationships and reputation. Businesses must carefully balance their collection efforts to avoid alienating customers.
  • Legal risks: If businesses fail to comply with legal constraints, they may face legal repercussions. Legal battles can be costly and damaging to a company’s reputation.

Frequently asked questions

What is the primary goal of dunning?

The primary goal of dunning is to recover debts owed by customers for goods or services provided by a business. It is a structured process aimed at ensuring businesses receive payment for their products or services.

What happens if a customer refuses to pay after legal action is initiated?

If a customer still refuses to pay after legal action is initiated, the court may issue judgments and orders to enforce payment. Depending on the laws of the jurisdiction, these enforcement measures can include wage garnishment, bank account levies, or the seizure of assets. These actions are taken to compel the debtor to settle the debt as determined by the court.

Can businesses use aggressive tactics during dunning?

No, most jurisdictions restrict intimidation and coercion tactics during dunning. Using aggressive tactics can lead to legal consequences and damage a business’s reputation. The dunning process is intended to be a structured and legal means of collecting debts while maintaining fairness and respect for the debtor.

Is dunning a common practice in business?

Yes, dunning is a common practice in the business world. It is a structured approach used by businesses to collect payments for goods or services that have been provided but not yet paid for. Managing outstanding debts is essential for the financial health of businesses, making dunning a widely employed strategy.

What are some key elements of an effective dunning letter?

An effective dunning letter should include key details such as the amount of the debt, due date, payment instructions, and a clear request for payment. It should also maintain a professional and respectful tone. Additionally, offering options for resolving the debt, such as a contact for negotiations, can be beneficial in an effective dunning letter.

Key takeaways

  • Dunning is a structured process aimed at recovering owed funds from customers who have not paid for goods or services provided by a business.
  • Factors influencing the dunning process include the amount of debt, customer relationships, and the length of overdue payments.
  • Businesses must adhere to legal constraints during dunning to avoid legal consequences and maintain their reputation.
  • While dunning offers benefits such as efficient debt recovery and negotiation opportunities, it also carries the risk of customer displeasure and legal repercussions if not conducted properly.
View Article Sources
  1. JEROLD C. DUNNING – Federal Bureau of Investigation
  2. NetCredit Personal Loans Reviews (2023) – SuperMoney
  3. DUNNING Series – USDA Rural Development