Configuration of dunning rules

In this article, you will learn how to:

How a dunning rule works and how you can customize your dunning process with dunning rules

• General
• Dunning process according to payment type
• How a dunning rule works
• Conditions as triggers for actions
• Condition return debit note—special features of the dunning process for direct debit payers
• Temporary settlement of receivables without confirmed receipt of payment
• Store all rules in dunning level zero
• Condition of late payment – available for all payment methods
• Additional dunning criterion
• Actions—how are they triggered?
• Actions to be defined within the dunning levels
• Action membership cancellation—Options
• Cancellation with residual maturity
• Extraordinary cancellation with compensation
• The most important things summarized

Quick guide:

Dunning—Creating a Dunning Configuration – This is how it works:

1. settings / finances / dunning
2. create a dunning configuration
3. name the dunning system / determine the number of dunning levels
4. select a new dunning system / select a payment type
5. define rules for all dunning levels

General

Dunning rules specify the transfer of defaulting members from the initial to the target dunning level in the dunning process. They contain the criteria for recording a member and the actions to be carried out in the transfer process.

Dunning process according to payment type

After creating a dunning configuration and defining the number of dunning levels (link to article for more information), a dunning process must be configured for each payment type used.

Within the payment types, the previously created dunning levels are available, which a defaulting member will go through according to the defined dunning rules.

How a dunning rule works

Dunning rules can be defined for each dunning level. Dunning rules react to fulfilled conditions with a predefined action. The dunning process therefore follows the logic: “If a condition Y is fulfilled, then action X will be executed”.

Conditions as triggers for actions

The condition determines when a dunning rule takes effect and thus the stored action of the rule is executed. We distinguish between two main types of conditions:

• Return debit note
• Default of payment

Condition return debit note—special features of the dunning process for direct debit payers

The type Return debit note is only available for direct debit payers.

After selecting this type, you define which condition must be fulfilled for the rule to take effect. The action is defined depending on the number of returned direct debits.
Example: Typically, after the first returned direct debit, the first reminder level is reached, after the second returned direct debit, the second reminder level is reached, and so on.

Temporary settlement of receivables without confirmed receipt of payment

Special attention must be paid to direct debit collection in the dunning process. After receipt of the first returned direct debit, the member concerned is moved to dunning level 1 in this example, with all the associated actions in the form of communications, restrictions, and fees. As a rule, a new collection attempt is made if the debts have not been settled by a target date. With the transfer of the posting of the direct debit and the bank, the member's account is shown as balanced, as all claims have now been re-submitted to the member's bank account. Anticipating a successful payment, the dunning level is therefore set to zero again when the direct debit run is triggered.

Why is that?: in the case of a direct debit, Magicline must assume a successful collection until the opposite is confirmed by a repeated return debit note.

Store all rules in dunning level zero: (*for direct debit payers)
For the reason mentioned above, the initial dunning level from which all subsequent “jumps” to higher dunning levels are defined is dunning level 0. (These rules are already created in the standard configuration, so this can serve as help).

Condition of late payment—available for all payment methods

The second type “Late payment” allows you to configure a condition type that looks at the due date of the receivable or the last dunning. (This condition type is available for all payment types).

 If you select the type “Payment delay”, the triggering late payment is defined in days. As for the first dunning, the delay in payment refers to the elapsed days since the due date of the claim. If the member is already in the dunning process and thus in an active dunning stage, the reference frame of the late payment is the last dunning. (This is used in particular in setting up the dunning system for referring members or when setting a deadline.)

*Minimum and maximum amount of outstanding claims are also available here as additional criteria.

Additional reminder criterion:

By defining a minimum amount, you can additionally determine that members with claims below a certain open claim sum are not dunned. (For example, a defaulting member with an outstanding amount of 2 euros should not have to go through a dunning process with a dunning fee of 5 euros).

Actions—how are they triggered?

The actions are executed when the previously configured condition is fulfilled. First you must define when the action is triggered. For the payment types cash and bank transfer, the occurrence is always the Dunning run. You must therefore actively carry out a dunning run so that Magicline checks and deals with your defaulting members on the basis of the previously configured conditions.

For direct debit payments, the trigger “return debit note”. Is available as well. The action is carried out immediately as soon as a corresponding return debit note is entered in the Magicline, regardless of whether this entry is made manually or automatically. The application of dunning rules with the condition “In case of return debit note” is therefore carried out autonomously or without an actively executed dunning run.

Actions to be defined within the dunning levels

• Communication: Should there be communication or not? By letter or email?
• Template: Letter or email template, depending on previous selection, which letter should be used?
• Send automatically: Do you want the communication to be automatic, or do you want to start/control the sending yourself?
• Dunning fee: Define the amount of your fee for this reminder. (This is independent of any bank fees, it only refers to the fees for the dunning service).
•  Debit and / or access refusal:   Advisable for important return debits due to an invalid mandate or incorrect bank details.
• Membership cancellation: if desired, a membership cancellation with a remaining due date can be carried out. Extraordinary termination with a claim for compensation is also available.
• Debt collection: We also offer you the option of handing over defaulting members to our collection partner.
•  Next dunning level: to which dunning level should the member be moved?

Action membership cancellation—Options

Cancellation with residual maturity

This type of cancellation has the consequence that all open and accruing claims of the active membership period will become due on the day of the dunning. The membership is duly terminated at the end of the current membership period. A debtor thus has the possibility, after full payment of the outstanding claims, to use the paid service until the end of the membership period.

Extraordinary cancellation with compensation

The function “Extraordinary cancellation with compensation” terminates the membership on the day of the dunning and creates a real compensation for the remaining claims in the amount of these claims of the active membership period. (As this type of damages is usually not subject to VAT, the calculation of the total claim is made by deducting the VAT underlying the membership model).

FAQ: how do payments in flight affect dunning level promotion?

The dunning run evaluates each open receivable once. Whether the member is promoted to the next level depends on the days-late rule, the open amount, and, for direct debit only, whether a new collection attempt has just been triggered. Below is what to expect for the four most common situations.

• SEPA direct debit, new collection attempt is in flight. When you trigger a new direct debit run, the system books the new debit against the open claim. The account is provisionally balanced and the dunning level is reset to zero, even though the bank has not yet confirmed the collection. If the debit is returned later, the member re-enters the dunning process at the level defined by the Return debit note rule (typically level 1 again).

• SEPA direct debit, no new collection attempt yet. The dunning run does not look ahead. If 28 days have passed since the last dunning event and no new direct debit has been triggered, the next dunning run will promote the member based on the Late payment rule for the current level.

• Bank transfer or invoice, payment is in transit. There is no in-flight concept for non-direct-debit payment methods. The dunning level keeps progressing on the days-late schedule until the payment actually posts and balances the account. If the customer transfers on day 27 and the bank posts it on day 30, the dunning run on day 28 will still promote them.

• Partial payment lands before the next dunning run. The dunning level is only reset to zero if the remaining open amount drops below the threshold configured under Maximum open debt to reset dunning level. If the member pays only part of the claim and the rest stays above the threshold, the dunning level is preserved and the next promotion check still applies.

Decision rule, in one line. Promotion is decided on the dunning run date. The system never anticipates a payment that has not yet posted, except for direct debit submissions, which provisionally reset the level until a chargeback proves otherwise.

Common pitfalls.

• Triggering a manual direct debit run shortly before a scheduled dunning run will reset the level prematurely. Schedule the dunning run first if you want the late member to be dunned at the current level.
• Each payment method has its own dunning process within the same configuration. Make sure the rule you expect to apply is configured under the right payment method.
• A returned debit reaching the system after a manual reset will re-enter the member at the level defined by the Return debit note rule, which is typically level 1, not the level they were on before the reset.

The most important things summarized

• Create a dunning process for all payment types with interlocking dunning rules.
• Keep your dunning process as short as possible—the older a claim gets, the less chance there is of successful collection.
• Use regular debt collection handovers to speed up the collection of your outstanding debts. Our partner PayDue offers collection services at no cost risk – check availability.
• Note that the Magicline always resets the reminder level of a previously reminded member to 0 when a direct debit is made.
• Create and store the correct documents for each reminder rule in order to address your defaulting member correctly. (For example, a reference to incorrect bank details allows a different communication than a deliberate objection to a direct debit).
• Always adjust your dunning configuration in small steps to keep track of the dunning process.
• We are happy to support you if you still have questions about this topic!