Dunning Letters: What They Are, How to Write Them & Examples

Last Updated October 22, 2025

Delayed customer payments regularly hurt businesses. In fact, small businesses hold an average of more than $17,000 in unpaid invoices. That can have a tremendous impact on your cash flow.

When customers fall behind on payments, you need a clear, professional way to remind them to pay an invoice. Businesses use dunning letters to notify customers in writing about an overdue balance. Many customers pay after the first reminder, so dunning letters are a crucial part of business communication that helps maintain customer relationships while keeping your business profitable.

Continue reading to learn more the purpose behind dunning letters, how to write them, and practical dunning letter examples you can implement.

What Is a Dunning Letter?

A dunning letter is a written notice a business sends to a customer to remind them about an overdue invoice. It’s a concise message that outlines the amount the customer owes, the due date, and any late fees or other consequences of non-payment.

Since late customer payments can cause cash flow problems, businesses of all sizes send these letters as part of their accounts receivable process. However, you don’t want to hurt the customer relationship, which is why following a four-stage process, where each dunning letter gets progressively firmer, is so important.

Why Are Dunning Letters Important for Debt Collection?

Businesses send dunning letters for debt collection, and it’s one of the simplest and best tools for protecting your cash flow. They help you:

• Preserve customer relationships: It can feel awkward reminding a customer (especially a long-term one) to pay you. Relying on a dunning letter template helps you stay calm and professional, preserving your strong customer relationships while collecting payment.
• Improve recovery rates: Structured reminders increase the likelihood of collecting overdue balances, and well-worded letters can improve customer payment rates.
• Create a paper trail: Each dunning letter documents your attempt to settle up. This paper trail could help you in the event of a legal dispute.

The Role of Dunning Letters in the Larger Dunning Process

Dunning letters are just one component of the more general dunning process, a system that businesses use to recover overdue payments. Since you may have different payment terms with each customer, the dunning process customizes communications based on what each customer owes.

Rather than relying on one reminder, businesses send a sequence of letters—each with a specific purpose and different tone—to gradually escalate in urgency. The dunning process starts off gentler and assumes good intent, while the further you go in the process, the firmer the tone becomes (and the more serious the consequences of non-payment).

The dunning process is all about documentation. If a client refuses to pay, your messages to them create a much-needed paper trail to prove you did your due diligence.

What Are the Four Stages of a Dunning Letter?

Instead of resorting to aggressive communication first, businesses employ a series of carefully timed letters to encourage customers to settle their outstanding invoices. This four-step process gives customers a fair opportunity to resolve the invoice, but also shows that you’re serious about collecting payment. The four stages of a dunning letter start with gentler phrasing and lighter consequences and become more serious the longer the invoice goes unpaid.

1. Friendly Reminder Before the Due Date

The first dunning letter is the gentlest. At this stage, the focus is less about collection and more about customer service. Many customers miss emailed invoices, and it could just be an honest mistake, so speaking too firmly at this stage could hurt the relationship. It serves as a courteous reminder that a payment is coming due soon, helping customers avoid late fees.

2. Firmer Reminder Near or on the Due Date

If the customer fails to make a payment or hasn’t responded after you sent an invoice, the tone in the second dunning letter becomes firmer. At this stage, the letter should be serious but still polite. Point out that the invoice is due and request that they settle the balance promptly. The second letter establishes a clear record of contact in case you need to escalate the situation.

3. Urgent Request for Payment or Clarification After the Due Date

In the third letter, you request immediate payment. You can also ask for clarification on when the customer plans to make the payment. At this stage, you may add late fees to the original invoice or advise the customer that you’ve stopped all current and future work until the invoice is paid.

4. Serious Request and Final Legal Notice After the Due Date

Unfortunately, some customers refuse to pay entirely. If this happens to you, it’s time to send the fourth dunning letter, which is a final warning before you take legal action or send them to collections. Your tone here will be more formal and emphasize the consequences of non-payment.

How to Write a Dunning Letter

Learning how to write a dunning letter is an essential skill for any business owner. You’ll likely need to deal with collecting unpaid invoices at some time, so honing your business communication skills now will pay off in the long run.

Follow these tips to draft an effective dunning letter:

1. Create a Document With a Header

While you’ll likely send the letter via email, you should still create a PDF document of the official letter. Include your business name, contact information, and logo, as well as those for your client.

2. Be Direct

Be very clear about the purpose of this message. Begin with a courteous but direct reminder about the overdue payment.

3. Include All Necessary Details

Your client may have a lot of invoices from various vendors in their inbox. To expedite payment, always include payment details in the dunning letter, including the amount owed, the original due date, and any applicable late fees.

4. Mention Next Steps

Provide instructions on how the customer can pay or how to contact you if they have a question.

5. Always Maintain Professionalism

Late-paying customers are frustrating, but you need to stay calm and professional. Dunning letters are formal records that you may need to use in a legal setting, so maintain your professionalism even if the client is combative or uncooperative.

Dunning Letter Examples

Some businesses outsource to a dunning letter provider, who writes and sends these messages for you.

Outsourcing can save time, but you can also create your own dunning letter templates internally. Try these dunning letter examples to build your own internal templates for each stage of the process.

Gentle Payment Reminder: Dunning Letter Template

Send the first letter either before or right around the due date. Keep your tone friendly and customer-oriented:

Subject: Friendly Reminder – Upcoming Invoice Due
Dear [Customer Name],
We wanted to remind you that Invoice #12345 for $500 is due on [Date]. If you’ve already made a payment, please disregard this note. If not, you can make a payment online here: [link]. Thanks for your business!

Firm Payment Reminder: Dunning Letter Template

If the customer fails to pay on time, this follow-up template should have a firmer tone:

Subject: Important – Invoice Payment Due
Dear [Customer Name],
Our records show that Invoice #12345 for $500, due on [Date], has not yet been paid. Please remit payment promptly to avoid late fees. If you’ve already submitted payment, please let us know so we can update our records.

Firm Request for Payment: Dunning Letter Template

At this stage, you should directly ask the customer to make the payment:

Subject: Immediate Attention Required – Past Due Invoice
Dear [Customer Name],
Despite previous reminders, Invoice #12345 for $500 is unpaid. Please submit payment immediately or contact us within the next five business days to discuss your account. Failure to respond may result in additional fees or further collection efforts.

Serious Request for Payment & Final Legal Notice: Dunning Letter Template

The last dunning letter is the most serious. The last stage is a serious warning before you escalate the situation:

Subject: Final Notice – Immediate Payment Required
Dear [Customer Name],
This is our final notice regarding Invoice #12345 for $500, which is now [X] days overdue. If payment is not received within 7 days, we will be forced to escalate this matter to legal collections. Please consider this your final opportunity to resolve this balance.

Other Tips for Accelerating Customer Payment

Dunning letters are just one of the many tools available to you to speed up customer payment. You can also encourage customers to pay faster by:

• Offering early payment discounts: A small percentage off the invoice total can motivate customers to pay ahead of schedule.
• Enforcing late fees: Add a penalty to overdue invoices so customers know you’re serious about prompt payments.
• Automating reminders: Your invoicing software likely includes automated letters. Schedule these reminders to go out before invoices are due to reduce your reliance on later-stage letters.

How Invoice Factoring Can Help

While the dunning letter process is an effective way to recover overdue payments, it doesn’t solve the immediate problem: you need cash flow. Poor cash flow management introduces risk that puts your business on the line, and it’s crucial to have enough funds in the bank to keep the business going.

Invoice factoring is an alternative solution to dunning that gives you immediate access to funds. Instead of waiting through multiple rounds of dunning letters, you sell unpaid invoices to a factoring company to get the cash you need, ASAP.

One particularly helpful benefit is that many factoring providers also perform credit checks on new debtors. This perk helps you identify high-risk customers before extending credit or offering better payment terms. In other words, factoring not only accelerates cash flow right now, but it also reduces the likelihood that you’ll need to send a dunning letter at all.

In-Summary: Dunning Letters

Dunning letters remind customers to settle their invoices. While the vast majority of customers will reply to the first few reminders, the four stages of a dunning letter give you a structured framework for successfully requesting payment.

While your tone should become firmer as the process progresses, always remain professional. These documents could be used in the legal process if a customer refuses to pay, so stay calm at all times. Consider alternatives like invoice factoring if you need cash flow while working your way through the dunning process. This approach ensures you can cover payroll and keep the lights on while you get the funds you’re rightfully owed.

Dunning Letter FAQs

Why is it called a dunning letter?

“Dun” is an old word that means “to demand payment.” Today, we still use the word “dunning” to refer to when businesses collect on debts.

What are the different types of dunning letters?

There are typically four stages of a dunning letter. The first letter is a polite, friendly reminder, but the letters become progressively firmer. The process ends with a final letter that warns of legal action for non-payment.

What is the difference between a dunning letter and a demand letter?

Dunning letters and demand letters have different purposes. A dunning letter is part of a four-step process designed to encourage a customer to settle an outstanding payment. Businesses send a demand letter at the end of the dunning process, following unsuccessful payment attempts. It’s a formal demand and means that legal action is imminent.

Can you outsource a company to write dunning letters?

Yes, there are specialized dunning letter services that will write and send these messages for you. If you work with an invoice factoring company, they will take over all of the collection efforts for any factored invoice.

Michael McCareins

Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.