Dunning is the structured process of chasing customers for overdue payments. It typically involves a series of increasingly firm communications – from a friendly reminder to a formal demand – designed to recover the money owed while preserving the customer relationship where possible.
For UK businesses, unpaid invoices are not just an inconvenience. They directly damage cash flow, increase the risk of bad debts and consume time that could be spent on productive work. A clear, documented dunning process ensures overdue invoices are chased consistently and escalated appropriately.
The dunning timeline
A typical dunning sequence for a UK business follows this pattern:
| Stage | Timing | Action | Tone |
|---|---|---|---|
| Pre-due reminder | 3-5 days before due date | Friendly email or automated reminder | Courteous |
| First reminder | 1-3 days after due date | Email or letter noting the invoice is overdue | Polite, factual |
| Second reminder | 14 days after due date | Firmer email or letter with a request for immediate payment | Direct |
| Phone call | 21 days after due date | Personal call to the customer’s accounts payable contact | Firm but professional |
| Final demand | 30 days after due date | Formal letter warning of further action | Serious, formal |
| Escalation | 45-60 days after due date | Refer to debt recovery action | Legal/professional |
The exact timings depend on your industry, your payment terms and the size of the debt. Some businesses compress the timeline for smaller invoices and extend it for larger accounts.
Pre-due reminders
Sending a reminder before the invoice is due reduces late payments significantly. Many customers pay late not because they intend to but because the invoice has been lost, misfiled or forgotten.
A pre-due reminder should:
- Reference the invoice number and amount
- State the due date
- Provide payment details (bank account, sort code, reference)
- Be short and friendly
Accounting software can automate these reminders, sending them at a set number of days before the due date without any manual effort.
First reminder
If the due date passes without payment, send a first reminder within one to three days. At this stage, assume the customer simply overlooked the invoice.
The first reminder should:
- Note that the invoice is now overdue
- Include the invoice number, amount, original due date and how many days overdue
- Restate payment details
- Ask the customer to contact you if there is a query or dispute
Keep the tone polite and professional. Many late payments are resolved at this stage.
Second reminder
If the first reminder produces no response after seven to fourteen days, send a second, firmer communication.
The second reminder should:
- State clearly that the invoice remains unpaid
- Reference your previous reminder
- Request payment within a specific number of days (e.g. seven)
- Mention that you reserve the right to charge interest under the Late Payment of Commercial Debts (Interest) Act 1998
- State the consequences of continued non-payment
The phone call
A phone call is often more effective than written reminders because it demands an immediate response. Call the person responsible for paying invoices (not just a general switchboard) and:
- Confirm they received the invoice and reminders
- Ask when payment will be made and get a specific date
- Note the name of the person you spoke to and what was agreed
- Follow up with a written confirmation of the agreed payment date
If the customer raises a dispute, address it promptly. A genuine dispute should not be pursued through the dunning process – resolve the query first, then chase for payment.
Final demand
If the phone call and earlier reminders are unsuccessful, send a formal final demand letter. This letter serves as the last step before legal or professional debt recovery action.
A final demand should:
- State the total amount outstanding, including any statutory interest and compensation
- Reference all previous communications and the dates they were sent
- Give a final deadline for payment (typically seven to fourteen days)
- State clearly what will happen if payment is not received (referral to a debt collection agency, solicitor’s letter, county court claim)
- Be sent by recorded delivery or with proof of delivery
Statutory late payment rights
Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses have statutory rights when another business pays late:
| Right | Detail |
|---|---|
| Statutory interest | 8% per annum above the Bank of England base rate, calculated on the outstanding amount from the day after the due date |
| Fixed compensation | £40 for debts up to £999.99; £70 for debts £1,000 to £9,999.99; £100 for debts of £10,000 or more |
| Reasonable recovery costs | If the fixed compensation does not cover your actual debt recovery costs, you can claim reasonable additional costs |
These rights apply to business-to-business transactions (not consumer sales). You do not need to have included them in your contract – they apply automatically. However, stating them in your payment terms makes the position clear from the outset.
Escalation options
If the dunning process fails to produce payment, you have several options:
| Option | Cost | Suitable for | Speed |
|---|---|---|---|
| Debt collection agency | Typically 5-15% of the debt | Debts where the customer has not disputed the amount | Moderate |
| Solicitor’s letter | £100-£500+ | Larger debts; can be more effective than an agency letter | Moderate |
| County Court claim (Money Claim Online) | £35-£10,000 depending on the claim amount | Undisputed debts where you need a legal judgment | 4-12 weeks |
| Statutory demand | £100-£300 | Debts over £750; precursor to winding-up proceedings | Can be very effective |
| Mediation | Variable | Where there is a genuine dispute to resolve | Depends on parties |
For more detail on these options, see our guide to debt recovery.
Automation
Modern accounting software can automate much of the dunning process:
- Automated email reminders sent at pre-set intervals before and after the due date
- Aged debtor reports highlighting which invoices are overdue and by how many days
- Customer communication logs recording when reminders were sent and any responses
- Escalation flags alerting you when an invoice reaches a certain age threshold
Automation ensures consistency. Every overdue invoice gets chased, not just the ones you remember to follow up on.
Maintaining the relationship
Chasing debts is uncomfortable, but failing to chase them is worse. A professional, consistent dunning process is not aggressive – it is a standard part of doing business. Most customers expect to be reminded and do not take it personally.
To maintain the relationship:
- Always be professional and factual – never emotional or accusatory
- Separate the dispute from the debt – if there is a genuine problem with the goods or service, resolve it; the remainder should still be paid
- Offer payment plans for customers in genuine difficulty – recovering the debt in instalments is better than not recovering it at all
- Document everything – if the matter escalates to legal action, you will need a record of every communication
- Chase promptly and consistently – the longer you leave it, the harder recovery becomes and the more it damages your cash flow