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Most companies offer credit sales allowing customers to purchase goods and pay later. This process also involves a credit term that defines the time limit for the customer to repay their debt. Usually, customers settle these debts before that term. However, some customers may delay their payments. Companies may use dunning to demand customers pay their debts.
What is Dunning in Accounting?
Dunning is a business procedure often associated with accounting. It is when companies reach out to their customers to collect money from them. As stated above, this money relates to any goods or services provided to the customer in previous transactions. The intensity of this process may differ based on various factors such as customer history, credit terms, money owed, etc.
Dunning often refers to aggressive methods used by companies to coerce customers into repayments. It is the reason it gets a negative reputation. Typically, dunning involves various steps beginning with gentle reminders, going to threats, or warnings. A method used in this process is sending customers a letter known as the dunning letter.
What is a Dunning Letter?
A dunning letter is a form of communication between companies and their clients. It involves sending a letter to a customer during the dunning process. Usually, it states that the customer must settle their overdue payments to the company. In the modern corporate world, companies have replaced the dunning letter with emails or other forms of digital reminders.
The tone of a dunning letter may vary based on several factors, as mentioned above. These letters usually start with gentle reminders and may go to aggressive threats. Usually, a dunning letter follows a progression based on how stubborn the customers are in their settlements. However, it may have a limited impact after that. It is merely a part of the dunning process, which also involves other techniques.
What are the types of Dunning Letters?
In the past, most companies used a dunning letter that involved an actual letter sent through the mail. With time, other forms of communication have taken over this process. Some of the common types of dunning letters include the following.
- Dunning letters delivered through the mail.
- Dunning letters sent through electronic mediums, such as email, text message, or fax.
- Dunning letter generated through dedicated software.
The type of dunning letter used by a company may differ based on various factors. However, the underlying process and premise remain the same.
How to write a Dunning Letter?
There is no specific format that companies use for the dunning letter. The items included within this letter may differ based on various factors. Sometimes, companies have prewritten letters for different stages during the dunning process. The tone in these letters varies depending on how often and for how long customers delay payments.
Usually, the dunning letter includes the following items.
- Customer name and address.
- Company name and address.
- Date of the letter.
- Reminder to pay.
- Amount overdue.
- Time since the due date.
Conclusion
Dunning refers to the process companies use to request settlements for previous transactions. This process may involve various forms of communication, including the dunning letter. Currently, companies use electronic or other methods to deliver these notifications. The dunning letter is crucial in reminding customers to settle their overdue balances.
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