Dunning management systems in small businesses consist of more than just dunning software.
Think of your dunning system as a network of interconnected business workflows: from the system that detects a late payment to the system that escalates the collection process.
In this article, you’ll learn how the dunning process unfolds across seven steps, each corresponding to one distinct business system. You’ll also discover software that will make each step easier and faster.
Key takeaways for dunning management system
Dunning is an old-fashioned word meaning to chase up clients who are late on payments.
You can use dunning software to automate the messages you send to chase up delinquent customers.
Your CRM provides an invaluable record of all your past communications with delinquent customers.
Pipedrive’s CRM software stands out with its integrations to dunning-related tools and AI messaging automation – sign up for a 14-day free trial today.
Why is a dunning management system important for small businesses?
A dunning management system is an essential tool for businesses to chase up late customer payments.
Note: the term “dunning” goes back to the 17th century and refers to the process of following up with customers who are late on their invoices until they pay.
Late payments throw companies that lack a dedicated dunning system into turmoil. Accounts receivable has to follow up with customers manually, which is both time-consuming and frustrating.
Without persistent email reminders, it’s even possible the payment will never arrive at all, harming the bottom line and threatening cash flow and business continuity
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By comparison, companies that have a dunning system in place are:
More likely to receive timely payments due to automated reminders
Less likely to lose happy clients to involuntary churn when payments fail because of technical issues outside their control
More likely to discover insights that will optimize billing systems going forward
Less likely to feel frustrated and overwhelmed when clients pay late
Example: Imagine a software company that allows graphic designers to edit videos in bulk. When one of its largest customers has an overdue invoice, the billing platform detects the late payment. It automatically adds a note to the customer’s account in its customer relationship management (CRM) system.
The account manager sees the note and reaches out to the customer immediately using a pre-written email sequence that she modified using AI. The customer is grateful for the message and says they’ll be a couple of days late this month.
The company’s automated dunning process turned a stressful situation into a manageable interaction, improving the customer experience.
This guide will enable you to create a standard operating procedure outlining a dunning process for your business.
Step-by-step action plan for effective dunning management
To manage dunning successfully, your small business needs to take seven key steps in order.
In the rest of this article, you’ll learn about each of these steps and discover software you can use to make the process easier and faster.
1. Determine that your customer’s payment is late
The dunning process starts when a customer misses a payment.
There are a number of different ways to find out that your customer is late on their invoice, some manual and some automated.
The most straightforward scenario is when your customer emails their account manager or your support team to report a failed payment. Payment failures are typically due to issues with your payment processor, so the recovery rate is higher than if your customer were delinquent.
It’s also possible that the customer admits having insufficient funds or an expired credit card.
If the customer doesn’t own up to the issue, another possibility is that your accounting team catches the late payment. They may catch it during their regular reconciliation process or observe that your bank balance looks lower than expected.
However, there are two problems with these manual approaches to accounting:
They could take weeks to uncover the missing payment
They’re prone to human error
A faster and more reliable way to find out if a customer is late is to use software.
For instance, Stripe’s payment processor notifies your customers by default if they’re late or the system declines their card, but doesn’t notify you.
You can build functionality to receive those updates fairly easily using webhooks to send you an email or generate a Slack notification like this:
Alternatively, you could use CentralPay, which automatically creates alerts for missed payments or failed transactions.
A third possibility is to use QuickBooks to automatically match incoming payments to invoices and flag any that are overdue.
2. Check to see if the payment issue is on your side
Before you confront your customer about the late payment, check to see if the issue is with your payment system.
For example, you could use Bill.com to see when accounts receivable sent the invoice, whether it was for the right amount and if it was a duplicate invoice.
Check your payment gateway for error codes that could indicate a payment system issue on your end. Look for errors indicating:
A mismatch between the payment information in your system and what the customer provided
A broken integration between your platform and the payment gateway
A failed payment retry attempt
A failure to send the customer an automatic payment reminder
If you use PayPal as your payment processing software, a common problem is that it suspends your account temporarily if you exceed your expected revenue threshold. This function would make it impossible for customers to pay you.
Sometimes, payment gateways even experience hacking. For example, in February 2026, BridgePay suffered a ransomware attack that disrupted card processing for merchants across the US.
Keep an eye on uptime monitoring tools like Pingdom to make sure your payment gateway isn’t experiencing an outage or significant downtime.
If you discover any of the above issues with your payment system, notify your customer immediately and apologize sincerely for the inconvenience.
Take steps internally to minimize the odds of this happening again. Steps may mean switching to a new payment processing provider.
3. Notify your internal team that the payment is late
If a client falls behind on payments, you need to inform:
Their account manager, so they can reach out to resolve the issue before it escalates
Operations, so they can adjust project timelines and service delivery
Sales, so they know not to offer that client any upsells or cross-sells
Finance, so they can follow up on collections
Management, so they’re aware of strategic risks to the business as a whole
Sending dunning emails to each of these stakeholders manually would be time-consuming and prone to human error.
It’s more efficient to use a CRM like Pipedrive that keeps all your client account details in one central location. Simply add a note on the card representing the delinquent client, and all the stakeholders are now up to date.
In Pipedrive, you can create a custom “Account Status” field to show if a client is behind on payments.
Pipedrive integrates with QuickBooks, Xero and Stripe, so you can set up late payment notifications in those tools to automatically update the account status in Pipedrive in real time. These notifications are faster than updating the account status manually.
Pipedrive in action: Creative agency Accentuate connected its accounting system to Pipedrive so all its customer notifications were in one place. Over the four years after implementing Pipedrive, its integrated data management and automations helped boost Accentuate’s revenue by 10x.
For extra visibility, integrate Pipedrive with Slack to automatically generate a notification that all key stakeholders can see.
You can even connect Pipedrive to project management tools like Asana, Trello or Monday.
Any activity following an account status change in Pipedrive would automatically trigger the creation of a dunning workflow in your project management software.
If dunning becomes a recurring billing problem for your business, management may want to see a report of all the clients who are late on payments. It’s easy to segment your Pipedrive CRM by account status and generate the report in a couple of clicks.
4. Reach out to your customer to see if you can negotiate a solution
Assuming the payment issue is not on your side, it’s time to reach out to your customer to figure out what’s going on and find a solution.
If you’re a SaaS business, the fastest way to inform your customer about their late payment is to send a notification to their in-app dashboard.
You can also use dedicated software for dunning management like Chargebee and Recurly to email customers automatically – and continue to email them until you get a response.
For higher-value accounts, it’s worth investing in more personalized outreach. Have your account manager, customer success manager, customer support agent or whoever the customer knows best send them an email.
If you’re sending messages directly from your CRM, Pipedrive’s AI email writer streamlines the process by automating a lot of the busywork.
For your largest enterprise accounts, you might even consider having your founder give them a phone call.
Whether you engage with customers manually or using software, the best practice is to contact them at three-day, seven-day and two-week milestones after due payment until you get a response.
The messages you send should become gradually more serious in tone as your dunning process goes on.
This email template from collections and payables SaaS Peakflo is a good example of a message that communicates the seriousness of the issue while remaining respectful:
Log any customer communication that occurs in your CRM so you have a central record of what’s going on.
Resist the temptation to go to a debt collector at this stage of the process. Keep communicating through your internal team until you reach the point where you have to escalate matters.
5. Suspend their account if your customer doesn’t pay
If the customer still hasn’t paid or responded after several messages, the next step in the dunning process is to suspend their account.
As you do this, ensure you comply with the rules in your contract or service-level agreement (SLA).
You can use a contract lifecycle management platform like Ironclad to store all your contracts in one place so you can quickly locate the right one and see how your company dealt with similar disputes in the past.
If your contract states the client has a grace period before you can suspend their account, you need to honor your agreement.
As the end of the grace period approaches, or after 14 days if your contract doesn’t have a grace period, send your customer a final warning email or SMS.
Your message should be polite, factual and lay out the consequences of inaction, like this example from online booking tool YouCanBookMe:
If the customer still hasn’t paid after a few days, it’s time to suspend working with them. You can pause their account manually or use software like Unleash to automatically gate the features they no longer have access to.
For SaaS companies, disable your customer portal login, limit their ability to make transactions and update your CRM to say that their account has been suspended.
If you run a services business, email your client and say politely that you will be suspending your cooperation until you receive payment.
Even if you’ve formally paused your working relationship, continue to check in with the client every week or two and encourage them to communicate with you. Avoid putting pressure on them or guilt-tripping them.
6. Escalate the collection process legally or write the payment off
If the customer still doesn’t pay after you suspend their account, you need to decide whether it’s worth pursuing them further.
Your finance lead or business owner should approach the customer one last time to negotiate a settlement or payment plan. For example, if your customer owes you $6,000, you could offer them the following payment options:
Option 1 | Option 2 |
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To avoid the expense of going to court, you could also suggest meeting with a third-party mediator such as JAMS to work out a settlement.
If your attempts to negotiate fail, or if the customer continues to stonewall you, consider handing the account over to a debt collector in exchange for a percentage of the lost revenue. Know that this decision will be terminal for your relationship with your customer.
If payment recovery proves impossible and six months have passed, consider taking the customer to small claims court. Due to the expense of going to court, this is generally only worth it if the customer owes $5,000 or more.
For smaller debts, write them off and reflect on what your business can learn from the experience.
If you decide to go to court, you can use Rocket Lawyer to find a lawyer and create a formal demand letter.
Sue the customer for legal costs, payment collection costs and interest on top of what they owe you. If you’ve documented all your communication with the customer in your CRM, you have a paper trail that will be useful evidence for your lawyer.
You can also increase your odds of winning the case by mapping out your escalation process in your contract. This documentation leaves little room for dispute if a customer becomes delinquent.
7. Analyze past dunning experiences to learn lessons for the future
Analyzing dunning enables your business to flag late-paying customers sooner and recover overdue payments more quickly over time.
To determine the characteristics of clients who habitually pay late, use your CRM to create a segment for late-paying customers.
Use BI tools like Looker to analyze that segment and look for patterns in customer behavior. For example:
How does the communication pattern of late-paying customers in the early stages of the engagement differ from your typical client?
Are late-paying customers more likely to come from a particular country, state or city?
Which pricing tier are late-paying customers most likely to sign up for?
Once you’ve identified the metrics that correspond to early-stage red flags, assign new leads a score in your CRM that gauges how high-risk they are.
Here’s how it appears in Pipedrive:
Next, tighten your lead filtration and contracting systems so that you don’t accept leads whose risk score you perceive to be too high.
Example: A SaaS company analyzes past clients that didn’t pay on time and notices a pattern. Those clients always ask extensive questions about billing during the sales process and request to extend the trial period after signing up.
The CEO passes this information to their sales team and tells them to be even more discerning about qualifying leads that query billing during sales calls.
To reduce the amount of time and money it takes to resolve cases of dunning in the future:
Sync your CRM with your communication system to automatically record all communication with delinquent customers. This automation saves staff from having to input notes manually.
Segment your customers by account value and only manually chase up the highest-value customers. Leave the others to automated dunning management software like Chargebee.
Add multiple payment methods so your customers can choose what’s most convenient for them. For example, you might offer Stripe for credit card payments, PayPal as an alternative and TransFi to accept cryptocurrency.
Revisit your invoicing process periodically to ensure it’s as clear for customers as possible. Pay particular attention to due dates and payment instructions.
These ideas will reduce payment friction for both your clients and your team
Final thoughts
From detecting a late payment to escalating the collections process in court, successful dunning management involves multiple interconnected business systems.
As the place where your team can see communication records with delinquent customers, your CRM is central to your dunning process.
With integrations with numerous accounting, project management and communication tools, Pipedrive’s CRM automates many internal messages that teams previously had to send manually. Sign up for a 14-day free trial today and watch how much smoother your dunning process becomes.
