What Is Dunning? Payment Reminder Levels That Actually Get Invoices Paid

Dunning is the systematic process of chasing overdue invoices: a defined sequence of reminders, each firmer than the last, triggered by how late a payment is rather than by how annoyed anyone feels. The word is old (from to dun, to demand payment) and the practice is older, but the reason it exists is contemporary — most invoices are paid late because nobody asked, and asking on a schedule collects more money than asking well.

The value is in the systematic part. An ad-hoc process chases the loudest problem, forgets the quiet ones, and lets everyone avoid the awkward conversation.

Why invoices go unpaid

Before designing an escalation ladder, it's worth knowing what you are escalating against. Late payment has four causes, and only one of them is a reminder problem:

1. Administrative — the invoice was never approved, went to the wrong person, or missed a payment run. By far the most common, and a single reminder fixes it.
2. Disputed — the customer disagrees with the amount, the delivery or the terms. No number of reminders will help; this needs resolution, not pressure.
3. Deliberate — the customer is managing their own cash by stretching suppliers. Escalation works, because they are prioritizing whoever pushes hardest.
4. Insolvent — they cannot pay. Speed matters here, because you are competing with every other creditor. This is bad debt territory.

A good dunning process separates these fast. Its first job is not to collect — it is to find out which of the four you are dealing with.

A four-level ladder

Timings assume 30-day terms; adjust to yours.

Level 0 — Before the due date (day −5). A courteous "this falls due next week" note. Not a reminder, and it catches the entire administrative category before it ever becomes overdue. The single highest-yield message in the sequence, and most companies never send it.

Level 1 — Just after due (day +3 to +7). Friendly, factual, assumes an oversight: invoice number, amount, due date, payment details, and a copy of the invoice attached. No threat, because there is nothing to threaten yet.

Level 2 — Two to three weeks overdue (day +21). Firmer and specific. Restate the terms, ask directly whether there is a problem with the invoice, and give a date by which you expect payment. This is where a dispute must be flushed out — if the customer has an objection, you need it now, not at day 90.

Level 3 — Around 45 days overdue. Formal notice. States the consequences plainly: statutory late-payment interest, supply on hold, and referral to collection. Often the first message a human at the customer actually reads.

Level 4 — 60+ days. Final demand before action, then act: legal claim, collection agency, or write-off. The credibility of the whole ladder rests on this step being real. A process that escalates to a final demand and then does nothing teaches customers exactly what your reminders are worth.

Across all of it: stop supplying at the point where continuing turns a collection problem into a larger one. That is a commercial decision the finance function should force, not make alone.

What the law gives you in the EU

You are not merely asking politely. Directive 2011/7/EU on combating late payment in commercial transactions gives B2B creditors, once payment is overdue:

• Statutory interest at the ECB reference rate plus at least eight percentage points, without any need to send a reminder first;
• A fixed recovery fee of at least €40, automatically, in addition to interest;
• Compensation for reasonable recovery costs above that fixed sum.

Default payment periods are capped (broadly 30 days, extendable to 60 by agreement, with longer terms only where not grossly unfair). Member states implement the details differently, so check the national transposition before quoting figures — but the entitlement itself is not something you have to negotiate for, and mentioning it at level 3 is legitimate rather than aggressive.

Designing one that works

• Trigger on days past due, never on the invoice date. Terms differ per customer; the ladder must respect them or it generates noise.
• Segment by value and risk. A 90 € invoice does not deserve a phone call; a 9,000 € one deserves it at level 2. Chase by exposure, not chronology.
• Suppress disputes automatically. An invoice flagged as disputed must drop out of the ladder, or you will send a final demand about an invoice you already know is contested — the fastest way to destroy a customer relationship over an error you made.
• Send from a person, not a system address. Reply rates differ enormously between noreply@ and a named sender, and the goal is a reply.
• Include everything needed to pay. Invoice PDF, amount, reference, IBAN. Every extra step is another week.
• Escalate the channel, not just the tone. Email → email plus phone → letter. A phone call at level 2 outperforms three more emails.

Running it from the ledger

Payment reminders are not implemented in Nordlet today — the automated ladder above is a planned feature, and this article describes the practice rather than a shipped product. Stating that plainly matters more than implying otherwise.

What exists now is the data the process runs on:

• POST /v1/reports/debt-aging { side: 'receivables' } — per-partner buckets (current, 1–30, 31–60, 61–90, over 90) that map directly onto the ladder levels; see aging reports.
• POST /v1/sales/invoices/list filtered by payment status — the open items themselves, with due dates.
• The sale_invoice.paid webhook event — so a platform running its own reminder logic knows immediately when to stop chasing, which is the piece most home-grown implementations get wrong.
• POST /v1/sales/invoices/send — emailing the invoice PDF to the customer.

In other words, a platform can implement the ladder on top of the API today by reacting to events rather than polling, and the scheduling layer is what Nordlet plans to add.

FAQ

What does dunning mean in accounting?

The systematic process of pursuing overdue invoices through escalating reminders — a defined sequence triggered by days past due, rather than ad-hoc chasing. "Dunning letter" and "payment reminder" describe the individual messages in that sequence.

How many payment reminders should be sent?

Three to four levels covers most businesses: a pre-due courtesy note, a friendly reminder, a firm one that flushes out disputes, and a formal final demand. More levels mainly delay the point at which you act, which weakens the whole process.

Can I charge interest on late payments in the EU?

For B2B transactions, yes — Directive 2011/7/EU entitles creditors to statutory interest (ECB reference rate plus at least eight points) and a fixed recovery fee of at least €40, without a prior reminder being required. National implementations vary, so verify the local rules before stating specific figures to a customer.

When should dunning stop and collection start?

When the ladder is exhausted and the customer has neither paid nor engaged — typically around 60–90 days past due. The decision point is engagement, not just age: a customer discussing a payment plan is progressing, while a silent one at day 60 rarely improves with a fifth email.

Does sending reminders affect the accounting?

No. Reminders do not change the receivable, the revenue or the VAT — they are communication. What changes the accounts is a provision for doubtful debts, or eventually a write-off; both are covered in bad debt.