Q)What is dunning? What is dunning level..? How many dunning levels can be configured?

Ans)Customers with whom you transact business have to pay their 
dues eventually. Generally the due date on which the 
customers have to settle the dues is stipulated in the 
terms of payment agreed into with them.

Now one of the three logical events can happen:

1) Customers pay on the due date specified:

They pay the entire value of money for which you have 
supplied materials and / rendered services. Not a bad 
situation at all..... you can meet your financial 
commitments as planned since you have received prompt 
payment ....

2) Customers pay ahead of the due date specified:

This is a better situation for you..... Your money comes 
ahead of your original plan and you can be safe about 
meeting your financial commitments as 
planned ......Therefore, You waive off a small part of the 
dues owed by your customers since your working capital is 
not hampered.

3)What a mess things are in this business world !. You had 
promised money to your creditors assuming that your 
customers would pay promptly and that is not happening. 
This is a Domino effect commencing with your customers 
which you are forced to pass on to your vendors..... That 
is not one bit good !!!!. You must do something to prevent 
recurrence of such an uncomfortable situation ! 

What are the corrective measures which you intend to take? 
SAP calls it as DUNNING.

As a first step, you need to identify which of your 
customers have not paid their dues promptly . You need to  
remind each one of such customers about the non-payment and 
insist that the dues are settled immediately. This is done 
through letter correspondences ( indicating break up of 
dues owed by the customers). Some deaf customers who do not 
heed your letters need to be reminded often ( that is 
periodically , each time the letter sounding a little 
sterner than the earlier one.

The second optional step would be to levy penal charges for 
the defaulted payment in the following manner:

1. Levy of interest for nonpayment / belated payment

2. Levy of incidental charges incurred with regard to 
dunning ( the process of dunning is going to cost you by 
way of follow up,dunning and printing costs, maintenance of 
additonal records,additional labor incurred by way of wages 
to dunning clerks etc...)

Customers who are tone deaf even after repeated reminders 
would be handled through a legal process.

This is the process of dunning.

Generally, each time you dun a customer you are crossing 
one level of dunning. Though you can dun upto a maximum of 
nine times , you would normally resort to legal help after 
dunning three or four times, at the most. The number of 
dunning levels you need can be configured and theoretically 
it ranges from 0 to 9 levels ( 0 if your company is run by 
an inefficient management which does not bother to collect 
money on time  and 9 if your management is too liberal with 
your customers !).

I trust this gives you a basic understanding of what 
dunning is and what the dunning levels are.....