Did you know that your business has a credit score? It’s similar to your personal credit score - it tracks missed and late payments, if you’ve defaulted on loans, and your business’s assets and liabilities. But unlike your personal credit score, it’s not compiled by a credit bureau. People pulling your business’ credit score most commonly pull it from a company called Dun and Bradstreet.
Dun and Bradstreet, often referred to as D&B, is a commercial credit agency that’s been around for over 150 years. They track credit information for subscribers who can pull data on your business when deciding what payment terms to offer or whether or not to give you a loan. When your business is new most lenders will look at your personal credit score when making lending decisions. But as you grow, your business’ credit will become more and more important.
Understanding your Business Information Report ™ can help you identify why a vendor is extending their payment terms, or a bank has denied you for a loan. If your report doesn’t contain much information, you can proactively start to build your profile to obtain better rates and terms in the future.
Performance-Driven Scores on Your D&B Report
Your business’ past performance drives two scores on your D&B report - the D&B PAYDEX score and the D&B Rating. D&B calculates these scores based on data gathered about your business’ history.
D&B PAYDEX SCORE
This score assigns a rating of 1 to 100 for your business. It’s an overall assessment that looks at your last two years of history. D&B looks at how many vendors you do business with then drills into each payment agreement and the overall size of the relationship - i.e., how much you pay them.
The higher your score, the better, but you also get points for exceeding expectations. An 80 would mean that you paid vendors on time, but to earn a 100 score you should pay all vendors 30 days before the bill comes due. If you pay bills late, your score will drop. The later the payment, the lower the score.
Not all vendors report their payment data to D&B, which can impact your score. For example, the small bakery that supplies your weekly bread delivery probably doesn’t notify D&B when you pay a bill late. But the large, multi-national produce company probably does.
If you’re struggling paying bills on time and have to choose between vendors, and also want to build or maintain a high D&B score, prioritize bills to larger companies. Also, the larger the relationship, the bigger the impact it’ll have on your score.
D&B Rating
This is one rating that you might be missing, or have a lower score, if you don’t register with D&B and provide them with your financial statements. That’s because D&B bases this rating on your net worth as calculated off your financial statements, as well as your overall condition.
Without financial statements, they base your score on company size, industry, or other related factors. After you register for a DUNS number, which is a unique number assigned to your business by D&B, you’ll be able to submit your statements.
Predictive Scores on Your D&B Report
Based on the scores above, and the data that D&B analyzes to prepare those scores, D&B then tries to predict your future behavior. D&B looks at the past 12 months of historical payments to predict how you’ll act in the future.
Delinquency Predictor Score
This score ranges from 1 to 5, with 1 being the best score. A high score indicates that you’re extremely likely to pay your bills late over the next year. If you were trying to open an account with a new supplier and they saw that you had a bad score on your report, they might not extend you credit.
The Financial Stress Score
This metric also ranges from 1 to five, with a score of 1 being the best. It’s an indicator of potential financial distress. Financial distress could be a difficulty paying your bills, a low current ratio, or rapidly rising debt levels.
The Supplier Evaluation Risk Rating
Unlike the other predictive scores, the supplier evaluation risk rating measures your risk on a scale of one to nine. One is the best, and indicates a low likelihood that your business will shut down or go out of business in the next year.
Building Business Credit
As you grow and expand, your D&B report which contains negative information could limit your growth potential. If suppliers are unwilling to extend terms, or a lender won’t approve a loan, you could end up stuck. It’s important to start thinking about your business credit early in your company’s life.
One of the first things you can do to start building your credit is to open a business checking account and register your business with the state. This makes you look more official. Secondly, registering with D&B for a DUNS number sends them the signal to begin tracking your business’ activities. And lastly, pay your largest and more important suppliers on time or early.
What if you already have a score, and isn’t good? The good news is that even if you have a poor D&B score right now, it’s fixable in a much shorter timeframe than a personal credit score. Your personal credit score takes up to ten years of information, but just a year of making on-time payments can boost your D&B report considerably.
With a little bit of work, you can ensure that your D&B report will improve your company’s future.