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How to Build a Great PAYDEX ScoreNovember 1, 2016
You may be familiar with the concept of a personal credit score, but did you know that your business can have a credit score too? Business credit scores are generally used by lenders to evaluate the credit worthiness of an organization. If your company has a good business credit score, it can qualify not only for a loan or term financing, but also for a business credit card. (To learn how a business credit card can help your organization, click here.)
Small business credit scores can be issued by any of the following four agencies - Dun & Bradstreet, Experian, Equifax, and FICO. Out of these, Dun & Bradstreet's PAYDEX® score has the simplest model that depends mainly on how timely the company makes its payments. A PAYDEX score ranges from 0 – 100, and any score that's 80 or above signifies that there's a good likelihood the business will pay within the agreed upon terms.
Uses: For small businesses, a good PAYDEX score can lower the premiums and interest rates on loans and credit cards. It is also used by vendors to determine whether the organization is likely to pay its bills on time, or if it may present risks going forward.
Obtaining a PAYDEX Score: For this, you first need to apply for a DUNS number if you don't already have one. You can do this by registering with Dun & Bradstreet and providing basic information about your company.
Calculation: To get a PAYDEX score, the organization needs to have at least four separate trade references in its file. Although all references remain in the company's file for a substantial period of time, only those from the last two years are used to calculate the PAYDEX score. Thus, recent trade experiences have a higher impact on the company's rating than older ones. Moreover, the greater the size of credit, the larger is likely to be impact on the score.
Reporting Requirements: In order to receive a PAYDEX score, organizations need to ensure that their vendors are reporting the transactions to Dun & Bradstreet. This requirement can pose a problem for certain type of companies, such as service industries (since they typically don't have vendors) or tech start-ups (as these usually have little external needs). In such cases, the companies can use accountants, lawyers and landlords as trade references, as long as their transactions are backed with invoices and have pre-determined payment terms. Most major office supply stores report trade accounts directly to Dun & Bradstreet, hence opening an account with one of these can also serve the required purpose.
What You Can Do to Improve Your Score
Generally, a minimum score of 80 indicates to vendors that the company pays its bills on time. There is no need to aim for a perfect score of 100, since to achieve this, you would need to make payments one month in advance of when they're due. It could be highly inconvenient from a cash flow perspective. Your score depends on how early you make your payments relative to the terms of your agreement with vendors. Thus, by negotiating with suppliers for longer credit terms, you can increase the probability of a good credit score. For example, compared to a net 10 days agreement, a net 30 day agreement would give you a greater time window in which to fulfil your obligations and reduce the possibility of making a late payment.
Though it may sound easy, we understand that the entire process of registering for a Dun & Bradstreet PAYDEX number, meeting the agency's requirements and ensuring a good business score can be a difficult task to accomplish. This is why we offer a Dun & Bradstreet PAYDEX Corporate Credit building service through which we help you build a great score and get hundreds of thousands of dollars in additional credit. If you know someone who wants to build a great business score or needs a loan to grow their organization, put them in touch with us at (800) 996-0270, and we'll do everything that we can to help them achieve their dreams.