What is SaaS dunning, and why does it matter?

SaaS dunning is the process of recovering failed or overdue payments for subscriptions through automated retries and timely customer outreach. It prevents avoidable churn and keeps cash flow predictable.

What is dunning in the SaaS industry?

Dunning is the follow‑up workflow after a payment fails. The dunning cycle (sometimes called the dunning process in SaaS contexts) includes:

1. Payment failure detected (expired card, insufficient funds, bank decline, or network error).
2. Automated retries run on a schedule tailored to the payment method.
3. Customer notifications (email, in‑app, or SMS) with a clear path to update payment details.
4. Resolution (payment succeeds) or final action (temporary suspension or cancellation) if they don’t make further payments.

Smart dunning explained

Smart dunning means adaptive retries and messaging based on payment type, geography, and prior outcomes. Practical examples:

• Retry when success odds are highest. Use gateway tools that pick optimal retry windows.
• Update cards automatically. When supported, keep saved cards current without manual input.
• Segment schedules. High‑value customers may warrant more touches before a final action.

Why dunning matters for SaaS businesses

Dunning matters for SaaS businesses because it can reduce involuntary churn, protect cash flow, and preserve the customer-provider relationship. Many cancellations happen by accident, not by choice. A strong dunning system gives customers fast ways to fix issues.

Consistent recoveries stabilize MRR, shorten collection time, and lower risk from overdue invoices. Clear, helpful messages show customers you want them to stay. Treat dunning as service instead of collections.

Tools and tech used for dunning

The backbone of modern dunning is automation and smart dunning technology. Instead of manually chasing down payments, specialized software handles the heavy lifting. 

Popular options like Churnkey and Baremetrics offer a range of features. These go from sending out those initial reminders to managing complex retry schedules. Some even analyze customer behavior to optimize communication.

These dunning system tools integrate with your existing billing and payment systems, such as Stripe or Braintree. This guarantees a smooth, behind-the-scenes process. It helps keep your revenue flowing and your customers happy.

Benefits of dunning for SaaS businesses

Dunning might sound like a dry, back-office task, but it can bring numerous benefits to SaaS companies. Let's unpack why SaaS dunning management matters so much:

1. The cash flow lifeline: Think of dunning as your financial first responder. Proactively addressing failed dunning payments guarantees a steadier stream of revenue. Fewer overdue accounts mean a healthier bottom line. This consistent cash flow is the lifeblood of any business, fueling growth and stability.
   ‍
2. Customers stick around: Ever forgotten to update your credit card info and lost access to a service you love? Dunning prevents this scenario by opening a dialogue with your customers. Instead of canceling their dunning subscription, you give them a chance to fix the issue.
   ‍
3. The efficiency engine: Dunning automation takes the grunt work out of chasing payments. This frees up your team to focus on more strategic tasks. Plus, automated systems are less prone to errors. The result is a smoother experience for both you and your customers.

Note: For more insights, explore our in-depth guide to dunning management using other SaaS billing software solutions.

Bonus benefit: Data-driven insights

Beyond the immediate benefits, dunning gives you insights into your customer base and payment patterns. This data can help you spot churn risks, optimize your pricing, and even find opportunities for upselling or cross-selling.

Common dunning strategies

There's no one-size-fits-all SaaS dunning strategy. A successful approach often involves a combination of tactics tailored to your business and customer base. Let's take a look at some tried-and-true methods:

1. Automated email reminders

What it is: Triggered emails at set intervals with payment links.

Why it works: Email scales and creates a clear audit trail.

Watchouts: Messages can land in spam or get ignored. Keep subject lines clear, bite‑sized, and action‑oriented.

2. SMS nudges

What it is: Short reminders with a secure link to update details.

Why it works: High open rates and quick responses.

Watchouts: Obtain consent and provide an easy opt‑out.

3. In-app notifications

What it is: Banners or modals that appear during active use.

Why it works: You reach users at the moment of intent.

Watchouts: Avoid blocking essential workflows before the final step in your dunning subscription rules.

4. Phone calls

What it is: Human outreach to resolve complex issues.

Why it works: Live problem‑solving and stronger rapport.

Watchouts: Costly and harder to scale; reserve for large contracts.

5. Escalation protocols

What it is: A schedule that increases urgency over time and ends with a clear final action.

Why it works: Delivers consistency and fairness across accounts.

Note: Understanding payment timing is crucial for SaaS success. Learn more about billing in arrears and explore SaaS payments best practices.

Dunning process best practices

The best practices are to personalize, time retries well, and remove friction. Use these specifics:

1. Personalize every touch. Use the customer’s name, plan, and the exact invoice. Keep copy short and friendly.
2. Send at the right time. Space messages and retries across business hours in the customer’s time zone.
3. Offer options, not ultimatums. Provide multiple payment methods and a self‑serve portal for updating details.
4. Prevent failures proactively. Remind users of cards nearing expiry and use an account updater when available.
5. Secure the process. Follow applicable privacy and payment rules, and keep links short‑lived.
6. Measure and iterate. Track recovery rate, days to recover, payment‑failure churn, and message performance. Test your schedule and copy each quarter.

Note: Implementing these best practices requires the right tools and processes. Discover more about managing unbilled receivables.

Potential challenges with SaaS dunning

While dunning is a valuable tool, it's not without its hurdles. Let's address some of the common stumbling blocks.

The possibility of alienating customers

Nobody likes being reminded of unpaid bills. Too many notifications or an overly aggressive tone can irritate customers. It could potentially lead to churn.

The solution: Strike the right balance between persistence and politeness. Personalize your communication. Offer self-service options for updating payment information, and then make it easy for customers to contact you if they need help. Remember, empathy goes a long way.

Payment gateway issues

Payment failures aren't necessarily the customer's fault. Technical glitches with your payment processor can disrupt the process. This eventually leads to unnecessary dunning attempts.

The solution: Choose a reliable payment gateway and monitor it regularly for any issues. Have a plan in place to quickly address any problems that arise and communicate any disruptions to your customers promptly. Transparency builds trust.

Legal and compliance

Dunning practices must comply with various laws and regulations. Think consumer protection laws and data privacy rules like GDPR in Europe and CCPA in California. Failure to do so can result in legal issues and damage your reputation.

The solution: Familiarize yourself with the relevant laws in your region. Make sure your dunning process adheres to them. Consult with legal counsel if needed, and be transparent with your customers about your policies. Compliance is essential for ethical business practices.

Orb can help improve dunning for your SaaS company

Our customizable billing platform includes built-in invoicing to automate payment collection, dunning, and invoice delivery to customers.

With Orb, teams define clear pricing rules, unlock their usage data, and generate auditable invoices. Monetization keeps pace with product changes, since pricing and billing changes do not require engineering, and teams can ditch fragile spreadsheets.

• Reduce billing errors: Orb ingests raw event data at scale with high accuracy and turns it into fully auditable invoices. Even as you evolve pricing, invoices recalculate automatically to remain accurate.
• Evolve pricing fast: Define billing metrics with the Orb SQL Editor or a visual editor and build new plans and models without code changes.
• Decouple data from logic: Orb RevGraph keeps usage data separate from pricing logic, so invoices stay accurate and up to date.
• Plan with confidence: Orb Simulations uses your historical data to preview revenue and usage outcomes before launch. Orb enables forecasting so that finance and product can make more informed decisions.
• Keep systems in sync: Orb  integrates with accounting, CRM, and payment systems so usage and revenue data stay aligned across your stack.

Ready to take control of failed payments and protect your bottom line? Check our flexible pricing options and find a plan that fits your specific business needs.