Dunning Email Best Practices: Recover Failed Payments

Dunning is the process of communicating with customers to recover failed payments. In SaaS, it combines automated payment retries with customer notification emails that prompt them to update their payment information.

The term originates from the 17th-century verb “to dun,” meaning to make persistent demands for payment. In modern SaaS, dunning is typically automated and handled through a combination of your payment processor (like Stripe) and your own email sequences.

Dunning is one of the highest-ROI activities in SaaS because it targets involuntary churn — customers who did not choose to leave but whose payments failed. Industry data commonly suggests that involuntary churn from failed payments accounts for 20-40% of all SaaS churn. These customers still want your product; they just have a payment problem that needs fixing.

Unlike voluntary churn, where a customer actively decides to cancel, involuntary churn is almost entirely preventable with the right systems in place.

A complete dunning sequence typically includes four types of emails, timed around payment retry attempts:

1. Pre-expiry warning (7 days before): Notify customers whose credit card is about to expire. This prevents the failure from happening at all. Include a direct link to update their payment method.
2. First failure notification (day 0): Immediately after the initial payment failure, send a friendly notification. Keep the tone helpful: “It looks like there was an issue with your payment. Here’s a link to update your card.”
3. Retry reminders (days 3, 5, 7): After each automatic retry fails, send a reminder. Gradually increase the urgency of the messaging while remaining respectful.
4. Final notice (day 10-14): Warn the customer that their subscription will be cancelled if payment is not resolved within a specific timeframe. Be explicit about the date.

The total dunning window is typically 14-21 days. Going beyond that rarely recovers additional payments and keeps your metrics murky.

The tone and content of your dunning emails significantly impacts recovery rates. Key principles:

Be helpful, not threatening. The customer did not intentionally fail to pay. Lead with assistance: “We noticed a problem with your payment and want to help you resolve it.”

Include a direct link to update payment. Every dunning email must contain a prominent button or link that takes the customer directly to their payment settings. Minimize the number of clicks between the email and the payment form.

Show what they will lose. Remind the customer of the value they are getting from your product. Mention specific features, data, or team access that will be affected if their subscription lapses.

Keep it short. Dunning emails should be brief and scannable. The customer needs to understand two things: (1) their payment failed, and (2) here is how to fix it.

• Subject line: clear and specific, e.g., “Action needed: Your payment for [Product] failed”
• Body: 3-5 sentences maximum
• CTA: One prominent “Update Payment Method” button

Stripe offers a built-in feature called Smart Retries that uses machine learning to determine the optimal time to retry a failed payment. Instead of retrying on a fixed schedule, Smart Retries analyzes signals across the Stripe network to choose the moment when a retry is most likely to succeed.

You can configure Smart Retries in your Stripe Dashboard under Settings > Billing > Subscriptions and emails > Manage failed payments. Options include:

• Smart Retries: Stripe automatically retries up to 4 times over a configurable period
• Custom retry schedule: Set specific retry intervals (e.g., 3 days, 5 days, 7 days after failure)
• Customer emails: Stripe can send basic dunning emails on your behalf, though custom emails typically perform better

Even with Smart Retries enabled, you should still send your own dunning emails. Stripe’s built-in emails are functional but generic. Your own branded emails with personalized messaging and a direct payment update link will recover more payments.

The best dunning strategy is to prevent payment failures from happening in the first place. Several proactive measures can significantly reduce failed payments:

• Card updater services: Stripe supports automatic card updates through card network updater programs. When a bank reissues a card with a new number or expiration date, Stripe can automatically update the stored payment method.
• Pre-expiry reminders: Send an email 30 and 7 days before a card’s expiration date, asking the customer to update their payment method.
• Backup payment methods: Encourage customers to add a secondary payment method that can be charged if the primary fails.
• In-app notifications: Show a banner or alert inside your application when a customer’s card is about to expire or a payment has failed.

These preventive measures, combined with an effective dunning sequence, can dramatically reduce involuntary churn.

Track these metrics to evaluate and improve your dunning process:

A well-optimized dunning process typically recovers 30-70% of failed payments, according to commonly cited SaaS benchmarks. The wide range depends on your customer base, payment methods, and the quality of your dunning sequence.

Additional metrics to track:

• Recovery rate by retry attempt: What percentage is recovered on the first retry vs second vs third? This tells you how many retries are actually useful.
• Recovery rate by email: Which dunning email drives the most payment updates? Optimize the highest-impact email.
• Time to recovery: How many days after the initial failure does the average recovery happen?
• Involuntary churn rate: The percentage of customers lost specifically to payment failures. Track this separately from voluntary churn.

Review these metrics monthly and A/B test your dunning emails to continuously improve recovery rates.