Dunning Playbook

Complete guide to recovering failed payments and reducing involuntary churn.

Why Dunning Matters

• Failed payments cause 30-50% of all subscription churn
• Most failed payments are recoverable with the right strategy
• Subscription businesses lose an estimated $129 billion annually to involuntary churn
• Effective dunning recovers 50-60% of failed payments

The Dunning Timeline

Day -30 to -7: Pre-dunning (prevent failures)
Day 0:         Payment fails → Smart retry #1 + Email #1
Day 1-3:       Smart retry #2 + Email #2
Day 3-5:       Smart retry #3
Day 5-7:       Smart retry #4 + Email #3
Day 7-10:      Final retry + Email #4 (final warning)
Day 10-14:     Grace period ends → Account paused/cancelled
Day 14+:       Win-back sequence begins

Pre-Dunning: Prevent Failures Before They Happen

Card Expiry Management

Email template — Card expiring:

Subject: Your card ending in 4242 expires soon

Hi [Name],

The card on file for your [Product] subscription expires on [date].

Update your payment method now to avoid any interruption:

[Update Payment Method →]

This takes less than 30 seconds.

— [Product] Team

Card Updater Services

Major card networks offer automatic card update programs:

Impact: Reduces hard declines from expired/replaced cards by 30-50%.

How to enable:

• Stripe: Automatic — enabled by default
• Chargebee: Enabled through gateway settings
• Recurly: Built-in, enabled by default
• Braintree: Contact processor to enable

Backup Payment Methods

Prompt for a second payment method:

• During signup: "Add a backup payment method" (low conversion)
• After first successful payment: "Protect your account with a backup card" (better timing)
• After a failed payment is recovered: "Add a backup to prevent future interruptions" (best timing — they felt the pain)

Pre-Billing Notifications

For annual plans or high-value subscriptions:

• Email 7 days before renewal with amount and date
• Include link to update payment method
• Show what's included in the renewal
• Required by some regulations for auto-renewals

Smart Retry Strategy

Decline Type Classification

Retry Schedule by Provider

Stripe (Smart Retries — recommended):

• Enable "Smart Retries" in Stripe Dashboard → Billing → Settings
• Stripe's ML model picks optimal retry timing based on billions of transactions
• Typically 4-8 retry attempts over 3-4 weeks
• Recovers ~15% more than fixed-schedule retries

Manual retry schedule (if no smart retries):

Retry timing insights:

• Retry on the same day of month the original payment succeeded
• Retry after common paydays (1st and 15th of the month)
• Avoid retrying on weekends (lower approval rates)
• Morning retries (8-10am local time) perform slightly better

Dunning Email Sequence

Email 1: Payment Failed (Day 0)

Tone: Friendly, matter-of-fact. No alarm.

Subject: Action needed — your payment didn't go through

Hi [Name],

We tried to charge your [card type] ending in [last 4] for your
[Product] subscription ($[amount]), but it didn't go through.

This happens sometimes — usually a quick card update fixes it.

[Update Payment Method →]

Your access isn't affected yet. We'll retry automatically, but
updating your card is the fastest fix.

Need help? Just reply to this email.

— [Product] Team

Email 2: Reminder (Day 3)

Tone: Helpful, slightly more urgent.

Subject: Quick reminder — update your payment for [Product]

Hi [Name],

Just a heads-up — we still haven't been able to process your
$[amount] payment for [Product].

[Update Payment Method →]

Takes less than 30 seconds. Your [data/projects/team access]
is safe, but we'll need a valid payment method to keep your
account active.

Questions? Reply here and we'll help.

— [Product] Team

Email 3: Urgency (Day 7)

Tone: Direct, clear consequences.

Subject: Your [Product] account will be paused in 3 days

Hi [Name],

We've tried to process your payment several times, but your
[card type] ending in [last 4] keeps getting declined.

If we don't receive payment by [date], your account will be
paused and you'll lose access to:

• [Key feature/data they use]
• [Their projects/workspace]
• [Team access for X members]

[Update Payment Method Now →]

Your data won't be deleted — you can reactivate anytime by
updating your payment method.

— [Product] Team

Email 4: Final Warning (Day 10)

Tone: Final, clear, no guilt.

Subject: Last chance to keep your [Product] account active

Hi [Name],

This is our last reminder. Your payment of $[amount] is past
due, and your account will be paused tomorrow ([date]).

[Update Payment Method →]

After pausing:
• Your data is saved for [90 days]
• You can reactivate anytime
• Just update your card to restore access

If you intended to cancel, no action needed — your account
will be paused automatically.

— [Product] Team

Grace Period Management

What Happens During Grace Period

Access Degradation Options

Option A: Full access during grace (recommended for B2B)

• Lower friction, customer feels respected
• Higher recovery rate (they still see value)
• Risk: some customers exploit the grace period

Option B: Read-only access (recommended for B2C)

• Can view but not create/edit
• Creates urgency without data loss fear
• Clear message: "Update payment to resume full access"

Option C: Immediate lockout (not recommended)

• Aggressive, damages relationship
• Lower recovery rate
• Only appropriate for very low-cost plans

Post-Grace Period

Provider-Specific Setup

Stripe

Enable Smart Retries:

1. Dashboard → Settings → Billing → Subscriptions and emails
2. Enable "Smart Retries" under retry rules
3. Set failed payment emails in Dashboard → Settings → Emails

Custom retry rules (if not using Smart Retries):

Retry 1: 3 days after failure
Retry 2: 5 days after failure
Retry 3: 7 days after failure
Final:   Mark subscription as unpaid after last retry

Webhook events to handle:

• invoice.payment_failed — trigger dunning
• invoice.paid — cancel dunning, restore access
• customer.subscription.updated — status changes
• customer.subscription.deleted — final cancellation

Chargebee

Built-in dunning:

1. Settings → Configure Chargebee → Retry Settings
2. Configure retry attempts and intervals
3. Settings → Configure Chargebee → Email Notifications → Dunning

Dunning options:

• Automatic retries with configurable schedule
• Built-in dunning emails (customizable templates)
• Grace period configuration per plan

Paddle

Managed dunning:

• Paddle handles retries and dunning automatically
• Limited customization (Paddle manages the relationship)
• Paddle Billing webhooks (dot-separated event_type names):
• transaction.payment_failed reports a failed payment attempt. Use its subscription_id to associate a subscription renewal; a failed one-off transaction is not subscription churn.
• subscription.past_due reports that the subscription is past due.
• subscription.canceled reports an effective cancellation. A cancellation scheduled for the next billing period emits subscription.updated first; retain access according to the current subscription state until that change takes effect.
• Configure notification subscriptions for these exact names. subscription.payment_failed and subscription.cancelled are not Paddle Billing event types; do not mix Billing webhooks with the separate Paddle Classic alert names.
• Verify the payment-failure and cancellation contracts before wiring account state changes.
• Best for hands-off approach

Recurly

Revenue Recovery:

1. Configuration → Dunning Management
2. Set retry schedule per plan
3. Configure grace period and final action (pause vs cancel)

Advanced features:

• Machine-learning retry optimization
• Per-plan dunning schedules
• Built-in Account Updater

In-App Dunning

Don't rely on email alone. Show payment failures in the app:

Banner Pattern

┌──────────────────────────────────────────────────────┐
│ ⚠ Your payment of $29 failed. Update your card to    │
│ avoid losing access. [Update Payment →]  [Dismiss]   │
└──────────────────────────────────────────────────────┘

Rules:

• Show on every page load during dunning period
• Allow dismiss (but show again next session)
• Direct link to payment update (fewest clicks possible)
• Don't block the product — let them continue using it

Modal Pattern (for final warning)

┌─────────────────────────────────────┐
│                                     │
│  Your account will be paused        │
│  on [date]                          │
│                                     │
│  Update your payment method to      │
│  keep access to your [X] projects   │
│  and [Y] team members.              │
│                                     │
│  [Update Payment Method]            │
│  [Remind Me Later]                  │
│                                     │
└─────────────────────────────────────┘

Measuring Dunning Performance

Key Metrics

Benchmarking

By company stage:

ROI Calculation

Assumed failed invoice amount:       $10,000/month
Baseline collected amount:           30% ($3,000/month)
Scenario collected amount:           60% ($6,000/month)
Additional recovered cash:           $3,000/month
If repeated for 12 months:           $36,000/year
Assumed incremental tooling cost:    $200-500/month
Recovered-revenue / tooling ratio:   6-15x
After tooling alone / tooling cost:  5-14x (500-1,400%)

The 6–15x is recovered cash ÷ tooling cost. Net of tooling it is 5–14x ((3,000 - 500) / 500 = 5; (3,000 - 200) / 200 = 14), before labor and payment fees. Validate the 60% recovery target against your own baseline. See gross versus net profit.