Paydex - Understanding Your D&B Business Credit Score
Your Paydex score from Dun and Bradstreet is one of the first things a prospective lender will look at after pulling your business's credit score. Basically, you Paydex score tells lenders and suppliers how long you take to pay your bills.
More precisely, the Paydex score is a dollar-weighted average of how long your take to pay your creditors. By being a weighted average, it means that larger balances will affect your score more.
For example, being 90 days past due on a $50,000 payment will offset paying ten $5,000 bills on time. The maximum score is 100, and the lowest is 0. Most lenders want to see a score of 65-70 or higher.
This score translates into paying most bills within 20 days of their due date. If you pay every bill precisely on time, your score will be 80. That means that if your bill is 30 days net, and you pay on day 30, you have paid precisely on time and not one day early.
To increase your score beyond 80, you must pay ahead of time. In other words, if your creditor gives you 30 days to pay, and you pay in 20, then you have paid 10 days in advance. This will push your Paydex score above 80.
D&B will not assign a Paydex score for your business until at least 4 different companies have reported your payment history (positive or negative). Also, D&B only takes into account the most recent 875 reported payments.
This is a lot of payments, so most companies won't even have the maximum 875 payments on their record. However, know that if you have late payments early on, that eventually they can fall off of your record.
You Only Get Credit For Suppliers That Report To D&B
It might seem obvious after thinking about it, but it needs to be said:
you business gets no credit for paying bills on time if your supplier doesn't report to D&B
If you are trying to build your business credit, you must identify suppliers and vendors that report payment frequency to D&B. Typically, larger suppliers and vendors report. Very small companies don't often have the time to spend reporting.
There are several services that offer lists of suppliers and vendors that report to D&B, allowing you to choose reporting vendors to establish your business's credit. However, reporting credit scores is less important than the business factors in choosing a supplier: price, reliability, quality, etc.
In other words, you should first narrow down your choice of vendors to ones whose price, quality and service you can rely on. If you have several good suppliers to choose from, then you can ask which reports to D&B and choose accordingly. It would be a bad idea to choose a vendor solely because they report to D&B if they have higher prices, poor service, or poor quality.
Paydex Business Credit Scoring Chart
|70||Slow to 14 Days|
|60||Slow to 21 Days|
|50||Slow to 30 Days|
|40||Slow to 60 Days|
|30||Slow to 90 Days|
|20||Slow to 120 Days|
Raising Your D&B Paydex Score
It should be fairly obvious how to raise your score. First, do business with vendors that report to Dun and Bradstreet (subject to the vendor also meeting your general business quality standards).
Secondly, pay all your bills within two weeks of their due date or earlier. This will ensure you have a score of 70 or higher--which is usually good enough for most lenders and suppliers.
Thirdly, because your Paydex credit score is dollar-weighted, you can increase your score dramatically by paying off a large balance early. Suppose you have a relatively poor score of 50 after $100,000 of reported transactions.
If you have a new $100,000 transaction coming up, pay it immediately after incurring it. This will give you a 100 score for the new $100,000. When combined with your existing $100,000 at 50, you will boost your score up to a 75.comments powered by Disqus