What is dunning?

Definition

Dunning is the planned trail of reminder notices that go out as an unpaid customer invoice gets older. It is a notice process around accounts receivable, not a separate account you post to.

Each notice is a step in a set order. A 30-day reminder is milder than a 60-day reminder, and a 90-day notice is firmer still.

Where it shows up

Balance Sheet: Related to the aged receivable the notices follow.

Cash flow: Related to cash if a notice produces a payment.

P&L: Related to nothing extra unless a later late fee or write-off is recorded.

See also: Collections · Accounts Receivable Aging · Invoice

When you look at the Balance Sheet, these notices follow the accounts receivable already sitting in current assets. Sending a reminder does not change that line by itself.

Cash on the Statement of Cash Flows moves only if a notice produces a payment. The Income Statement stays quiet unless a later late fee or write-off is recorded.

Dunning does not create revenue. The revenue was recorded when the sale was earned, and the notice only asks for the cash that is still outstanding.

Days sales outstanding is the average number of days it takes to collect an invoice. These notices are one of the tools used to keep that average from stretching.

An aging report shows which open invoices have reached 30, 60, or 90 days. Dunning is the notice that goes out when a bucket is reached.

How it works

A billed sale opens a receivable. If the balance is still unpaid when it hits a set age, the first notice goes out.

A typical trail is a polite note a few days after the due date, a firmer letter at 30 days, another at 60, and a final notice at 90. The exact calendar belongs to the shop.

Each notice names the invoice, the original amount, and how late it is. Some shops attach a list of all open items so the customer can see the whole balance.

Nothing journals when the notice is sent. The receivable does not move until cash arrives, a credit is issued, a late fee is added, or a balance is written off later.

Software can send the notices automatically from the aging buckets. A person can still stop a notice if the invoice is in dispute or already promised.

The tone usually hardens as the invoice ages. Early notes assume the bill was missed, and later notes ask for a date and may warn that new orders will pause.

Dunning stays on the written notices. Calls, holds, and write-offs sit around this trail, but the dunning itself is the sequence on paper or email.

Example

A florist billed a cafe $400 for bread. At 30 days past due the florist emails a reminder with the invoice number and the $400 amount.

At 60 days the florist sends a second notice that lists the same $400 and asks for payment this week. Neither email posts a journal.

If the cafe pays after the 60-day notice, cash goes up and accounts receivable goes down. If not, a 90-day notice may follow, and the $400 is still in current assets.

The Income Statement does not move because a reminder went out. It would move only if a late fee or a later write-off were recorded.

Common mix-ups

Dunning is not the whole collections process. Collections is the follow-up, including calls and holds, and dunning is the notice sequence inside that work.

Dunning is not the original invoice. The invoice created the receivable, and the notice only reminds the customer that the invoice is still open.

Dunning is also not a late fee. A late fee is a charge added to the books, and a dunning notice is the reminder, which does not have to add a fee.

Related terms

• Collections: The process of following up on unpaid customer invoices.
• Accounts Receivable Aging: A report bucketing open invoices by how long they have been outstanding.
• Invoice: The document that bills a customer and creates a receivable.
• Payment Terms: The agreed deadline and conditions for paying an invoice.
• Late Fee: A charge added when an invoice is paid after its due date.
• Days Sales Outstanding: The average number of days it takes to collect an invoice.
• Statement Of Account: A summary sent to a customer listing all open invoices and payments.
• Accounts Receivable: Money customers owe the business for goods or services already delivered.