Late payments are a persistent headache for small and medium-sized enterprises (SMEs) across industries – from manufacturers and traders to farmers and processors. Many business owners wonder, “Really, sending a reminder will help?!” The short answer is yes: a structured approach to payment reminders, known as dunning, can significantly improve your cash flow and reduce unpaid invoices.
This post will demystify what dunning is, how it works, and why it’s so effective – backed by research, psychology, and real-world examples.
#What is Dunning?
Dunning refers to the process of systematically reminding customers to pay overdue invoices. It usually follows a staged approach:
- First reminder: Friendly, polite nudge a few days after due date.
- Second reminder: More direct, mentioning late fees or next steps.
- Final notice: Firm, with possible mention of service suspension or legal action.
The tone escalates from friendly → assertive → stern. The goal is clear communication, not harassment.
Example:
“Hi [Name], invoice #12345 (€500) is now 7 days overdue. Please let us know if everything is in order for its payment. Thank you for your attention.”
#Why SMEs Need It
- 1 in 2 invoices in Europe is paid late or not at all
- SMEs in the UK are owed ~£15,000 on average in late payments
- 25% of EU bankruptcies stem from unpaid invoices
- SMEs spend 4–14 hours/week chasing late invoices
Cash flow is the #1 reason small businesses fail. Dunning addresses this directly.
#Why Sending Reminders Works
#1. Psychological Nudges
Many late payments are due to forgetfulness or procrastination. Research shows reminders work:
- In Australia, reminders led customers to pay 28% more on balances
- In Uganda, loan repayment rates jumped 9 percentage points with reminders
A simple nudge often shifts customers from “I’ll get to it later” to “I need to do this now.”
#2. Financial Benefits
- Reduced DSO (Days Sales Outstanding): Payments come in faster, improving working capital.
- Lower bad debts: Accounts are less likely to drift into non-payment.
- Better prioritization: Customers often pay the vendors who follow up first.
Case Study: Docuflow (Ireland) implemented automated reminders and cut payment delays by 54 days . That’s nearly two months of extra cash flow.
#3. Customer Relationships
Far from damaging relationships, polite reminders show professionalism. In Germany, dunning (Mahnung) is standard business practice. Done right, reminders:
- Clear up miscommunications (“I never got that invoice!”)
- Demonstrate organization and reliability
- Open the door to flexible solutions (payment plans, partial payments)
#Best Practices for Dunning
- Start early: Remind before due date, on due date, and 7 days after.
- Tone matters: Friendly → firm → final.
- Be clear: Always include invoice number, due date, amount, and payment methods.
- Use multiple channels: Email, phone, letters if necessary.
- Make it easy to pay: Add payment links or account details in every reminder.
- Offer solutions: Payment plans or discounts for quick settlement.
- Automate: Use accounting software to send reminders consistently.
#Real-World Impact
- Docuflow (Ireland): Invoices paid 54 days faster
- LoveBrands (UK): Saved 15+ hours/week on credit control
- Community Energy Scheme (UK): Recovered £800k of old debt with structured reminders
#Conclusion
So, does sending a reminder help? Absolutely. Evidence shows dunning:
- Speeds up payments
- Reduces bad debt
- Saves time
- Strengthens professional relationships
For SMEs, structured reminders aren’t pushy – they’re survival. If you’re not already doing it, start small: set up a reminder for invoices 7 days overdue. You’ll quickly see the results in your cash flow and peace of mind.
Ready to modernize your collections? Discover how Ledgvero can help automate your dunning process and get you paid faster.
