Dunning is a term that refers to the process of communicating with customers to ensure the collection of accounts receivable, or the money that they owe for goods or services provided. The word derives from the 17th-century verb ‘dun’, meaning to demand payment of a debt.
Dunning is an essential part of invoice finance, which is a way of raising funds by selling invoices to a third party, such as a bank or a factoring company. Invoice finance can help businesses improve their cash flow and access working capital, but it also requires effective dunning to ensure that customers pay their invoices on time and in full.
Dunning can involve various methods and strategies, such as sending reminders, making phone calls, hiring debt collectors, taking legal action, or offering incentives or discounts. The aim of dunning is to persuade the customer to pay their debt without damaging the relationship or harming the reputation of the business.
However, dunning can also vary depending on the country and the culture of the customer. Different countries may have different laws, regulations, customs, and expectations regarding dunning. Therefore, businesses that operate internationally or deal with foreign customers need to be aware of these differences and adapt their dunning accordingly.
Dunning in the UK
In the UK, dunning is regulated by various laws and codes of practice, such as the Late Payment of Commercial Debts (Interest) Act 1998, the Consumer Credit Act 1974, the Data Protection Act 2018, and the Financial Conduct Authority’s Consumer Credit Sourcebook. These laws and codes aim to protect both creditors and debtors from unfair or abusive practices and to promote good practice and professionalism in dunning.
According to these laws and codes, creditors in the UK have the right to charge interest and compensation for late payment of commercial debts, to report unpaid debts to credit reference agencies, to instruct debt collectors or solicitors to recover debts, and to take legal action through the courts if necessary. However, they also have the duty to treat debtors fairly and respectfully, to provide clear and accurate information about the debt and the consequences of non-payment, to respect the privacy and confidentiality of debtors, and to consider any reasonable offers or requests from debtors.
Some of the best practices for dunning in the UK include:
- Sending a clear and detailed invoice with a payment deadline and terms and conditions
- Sending a polite reminder before the due date or shortly after
- Sending a firmer reminder or a notice of default if the payment is still overdue
- Contacting the customer by phone or email to discuss the situation and agree on a payment plan
- Offering incentives or discounts for early or prompt payment
- Escalating the matter to a debt collector or a solicitor if the customer is unresponsive or unwilling to pay
- Taking legal action as a last resort if all other options have failed
Dunning in the USA
In the USA, dunning is subject to the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), the Uniform Commercial Code (UCC), and state laws. These laws and regulations aim to protect consumers from harassment, deception, abuse, or unfair practices by debt collectors and creditors.
According to these laws and regulations, creditors and debt collectors in the USA have the right to contact consumers by mail, phone, email, or text message to demand payment of debts, to report unpaid debts to credit bureaus, to sue consumers in court for non-payment of debts, and to garnish wages or seize assets if they obtain a court judgment. However, they also have the duty to identify themselves and provide validation of the debt upon request, to respect the consumer’s right to dispute or request verification of the debt, to honour the consumer’s request to stop communication or limit communication times or methods, and to comply with any state-specific rules or restrictions on dunning.
Some of the best practices for dunning in the USA include:
- Sending an accurate and itemized invoice with a payment due date
- Sending a friendly reminder before or shortly after the due date
- Sending a more urgent reminder or a final notice if the payment is past due
- Contacting the consumer by phone or email to negotiate a payment arrangement
- Offering incentives or discounts for early or full payment
- Escalating the matter to a collection agency or an attorney if the consumer is uncooperative or delinquent
- Taking legal action as a last resort if all other efforts have failed
Dunning in Europe
In Europe, dunning is influenced by various laws and directives from the European Union (EU), such as the Late Payment Directive, the General Data Protection Regulation (GDPR), the Consumer Credit Directive, and the Payment Services Directive. These laws and directives aim to harmonize and improve the conditions and procedures for dunning across the EU member states, to protect the rights and interests of both creditors and debtors, and to facilitate cross-border transactions and payments.
According to these laws and directives, creditors and debt collectors in Europe have the right to charge interest and fees for late payment of commercial and consumer debts, to report unpaid debts to credit reference agencies, to use electronic means of communication and payment for dunning, and to initiate legal proceedings in the country of the debtor or the creditor. However, they also have the duty to provide clear and transparent information about the debt and the dunning process, to respect the privacy and personal data of debtors, to comply with any national or sector-specific rules or codes of conduct for dunning, and to use proportionate and fair methods of dunning.
Some of the best practices for dunning in Europe include:
- Sending a comprehensive and compliant invoice with a payment term and a reminder clause
- Sending a courteous reminder before or on the due date
- Sending a stronger reminder or a formal notice if the payment is overdue
- Contacting the debtor by phone or email to resolve the issue and agree on a payment solution
- Offering incentives or discounts for early or full payment
- Escalating the matter to a European collection agency or a lawyer if the debtor is unresponsive or unwilling to pay
- Taking legal action as a last resort if all other options have failed
In Conclusion
Dunning is a vital part of invoice finance, but it can also be challenging and complex, especially in an international context. Different countries may have different laws, regulations, customs, and expectations regarding dunning, which can affect the rights, duties, methods, and outcomes of dunning. Therefore, businesses that engage in invoice finance need to be aware of these differences and adapt their dunning accordingly. By following the best practices for dunning in each country, businesses can increase their chances of recovering their debts while maintaining good relationships with their customers.
