Updated 09/03/2025
What is a Dunning Letter? Definition With Examples
Dealing with overdue payments is a challenge that plagues finance leaders in countless companies. In the U.S., about half of B2B invoices are overdue and ~8% end up written off — which is why tightening your dunning process is critical for cash flow and working capital in 2025.
Dunning letters are an effective and widely used tool to tackle this issue, but many business leaders and managers are not familiar with the concept. In this article, we will explore what a dunning letter is, why customers pay late, the traditional dunning process, and how an accounts receivable (AR) automation tool can help. Additionally, we'll provide an example of a dunning letter to help you get started.
What is a Dunning Letter?
A dunning letter, or dunning reminder, is a notice sent to customers with overdue payments. Collection teams use dunning notices to monitor and prevent delinquent customer accounts, urging customers to settle their outstanding payments promptly. Implementing dunning letters in your accounts receivable process can help maintain healthy cash flow, lower delinquencies, and manage your Days Sales Outstanding (DSO) for improved financial metrics. Most finance teams use an escalating cadence (30 / 60 / 90 — and sometimes 120 — days past due) and tailor tone/content to the aging bucket.
Why Do Customers Pay Late?
Late payments can occur for various reasons, including financial constraints, forgetfulness, or communication issues between the company and customers. Additionally, a company's billing or service quality could contribute to late payments. Regardless of the reason, employing a method to remind customers of their obligations and encourage timely payments is vital. The scale of the problem is material: ~50% of B2B invoices are paid late and ~8% become bad debt, so structured, consistent reminders and simple payment paths are essential.
What is the Traditional Dunning Process, and How Does an AR Automation Tool Help?
The dunning reminder process can vary depending on collection teams' preferences and customer interaction approaches. However, to avoid complications, most teams follow these general steps:
- Setting an aging-based schedule: plan reminders at 30 / 60 / 90 (120 if needed) with a gradually firmer tone and clear next steps.
- Using automation for timing & pre-due nudges: most AR tools let you schedule reminders before and after due dates and stack up to five reminders without manual work.
- Identifying customer accounts with overdue payments
- Gathering a list of all delinquent accounts
- Drafting overdue payment reminders to customers with past-due balances
- Issuing customer payment notices by sending dunning letters
- Receiving payment from customers
AR automation tools are game-changers when it comes to issuing dunning letters to customers with overdue payments. These solutions automate the entire collections notice process, eliminating the need to draft and send dunning letters manually. Automation tools can accurately identify customers with past-due payments, allowing you to save time and focus on other essential tasks. Configure pre-due, first-past-due, and aging-bucket reminders, and include a secure ‘Pay Now’ or portal link in every message to minimize clicks and speed resolution. Most platforms support up to five automated reminders, and let you schedule by days before/after due.
Examples of Dunning Letters
To help you navigate the payment collection process, we've provided an example of an initial dunning reminder that you might send to customers with overdue balances:
Subject: Past Due — Invoice [Invoice #] ([Amount Due]), due [Due Date]
Hi [Customer Name],
Our records show Invoice [Invoice #] for [Amount Due] is [X] days past due (due [Due Date]).
Pay now: [Secure payment link / Customer portal link]
Attached: Invoice PDF and current statement (shows any other open items).
If there’s a dispute or you need a payment plan, reply to this email or call [AR phone] so we can resolve it quickly.
Thanks,
[Your AR team / Company]
Remit-to (if not using portal): [Bank / ACH / Wire details]
Tip: Schedule reminder sequences at 30 / 60 / 90 (and 120) days with progressively firmer tone, while keeping language factual and respectful; use your accounting/AR tool’s automated reminders to handle timing and tracking.
Find More From Centime
By understanding dunning letters' significance and incorporating them into your accounts receivable management, you can maintain strong relationships with customers and keep your financial metrics in good shape. Now that you're equipped with the knowledge and tools, you're one step closer to optimizing your company's account receivables management. Contact us today to see how Centime can help you with the dunning letter process. Given today’s environment — ~50% of U.S. B2B invoices are overdue and ~8% become bad debt — executing a clear cadence, automated reminders, and one-click payment access can materially reduce DSO and write-offs.
