Why digital dunning gets you your money faster.

Fully automated friendly reminders instead of old-fashioned letters: With a digital dunning system, companies can react faster, more efficiently and more personalised to late payments or payment default. But only a fraction of European companies take advantage of it.

If all that come to mind when you hear GDPR is pesky last-minute emails, you’re missing the point:

many companies are finally getting around to some serious digital housecleaning. Outdated business processes are put to the test, a good opportunity for a more efficient and digital revamp. Particularly when it comes to managing arrears, European companies have some catching up to do: In 2017, only 18 percent of European companies ran digital dunning systems, according to the EOS „European Payment Practices“ survey. Companies give away money in several ways: While digital dunning not only leads to more punctual payments, it also saves companies recovery costs and lowers administrative burdens and error rates when handling customer debt.

The advent of GDPR puts business processes to the test.

Even though computer-based accounting is now largely standard, many companies have no efficient way of handling payment defaults. Instead, a lot of dunning procedures still rely on human interaction. The moment of truth arrives when companies produce the GDPR required documentation on where all client data is stored and how it is being processed. They ask themselves: Do we really have to go through so many error-prone steps to ask for the money we are owed?

What company managers often forget: A solid dunning system doesn't only boost your cash flow. It also saves money by reducing the customer churn as entering a constructive dialogue with customers at an early stage helps to keep them coming back — and it's cheaper to retain customers than to win new ones.

Digital Dunning: A manual dunning process not only causes inefficient processing, manual dunning notices also reach their limits under the GDPR test bench. The GDPR prescribes documentation of customer data processing.

Debt recovery requires a different tone today.

So 2018 is a good year for companies to think about the introduction of a fully digital dunning system. This would also allow companies to respond to a change in client demands triggered by innovations in e-commerce, where everything is a bit simpler, more informal and friendlier — even though it's all based on purely rational, big-data and algorithm-based business processes.

Often companies send reminders too quickly and in a too drastic fashion with mails or letters carrying bold headers like  PAYMENT REMINDER and hinting at additional payment charges, interest and even legal action. It is all too human that customers may react defiant or defensive here when they are running late with their payments. In fact, most defaults occur for quite trivial reasons: An invoice may have been simply overlooked as it was hidden at the very bottom of a package or attached to an e-mail falsely deleted. Or customers have simply forgotten that they bought on account and not via PayPal or credit card as they usually do.

Even if debiting fails, it may simply be an unfortunate coincidence: The current account may be overdrawn exactly on the due date. Or the customer had to order a new credit card as an old one used for the order was stolen or locked.

Self-service portals free up resources at companies.

No matter for what reason: A good dunning system automatically responds to such cases with friendly messages without bureaucratic terms: Sorry, but we couldn’t charge your credit card — please click here and update your payment information and we'll retry. The messages don’t even mention words like „reminder" or „payment reminder". Just a friendly e-mail saying: No worries, in this fast digital world we all lose track of things sometimes.

Ideally, the e-mail link guides clients to a self-service website where they can update their details and initiate a new payment process, or pay right on the spot. For customers that means less paper and less time on the phone, while transactions are dealt with faster and cheaper, boosting the number of successful payments at a company’s accounting unit.

The more staff have to manually intervene in a digital dunning process, the greater is the risk that customer letters get ignored or delayed and the whole process grinds to a halt — which not only reduces your cash flow, but also irritates and annoys customers much faster today than it did just a few years ago. Because today we are all spoiled by very well-organized e-commerce pioneers with whom we deal in our personal lives.

Being always able to call up your own customer data, orders and payment transactions, getting live updates on order and delivery statuses and having a wide range of digital payment methods to choose from including direct debit, credit card, PayPal and instant transfers: Customers experience fully digitized, data-based business processes on a daily basis, so they are increasingly sensitive to anything that smells of paper work and red tape.

SMEs give away plenty of liquidity.

Several studies illustrate the size of the problem: In many companies too much of the working capital is tied up, and unpaid bills are a major contributor here. It’s an international problem: In the Nordic countries Sweden, Finland, Norway and Denmark, working capital tied up at companies exceeds the European average by roughly a third, according to a study conducted by the Nordea financial group. The 184 companies that took part in the survey could release 65 billion euros by better working capital management, it said.

An increased awareness of the advantages linked to a more efficient debt collection exists in countries where liquidity is a big issue, the „European Payment Practices“ survey shows: Topping the list is Spain, where 58 percent of companies operate a digital dunning system. But also Hungary and Switzerland (53 percent) are among frontrunners. When asked about digitization, few companies in Germany afford the digital luxury: In 2017, only 3 percent of German companies operated fully digitized dunning systems.

SMEs give away plenty of liquidity.
Several studies illustrate the size of the problem: In many companies too much of the working capital is tied up, and unpaid bills are a major contributor here.

share this