Is there a way for businesses to manage their credit score and get better interest rates on business loans and lines of credit? Surprisingly, there is, and in doing so, companies often find that it not only improves their interest rate on business loans, but also helps to improve their overall credit score and relationships with vendors. For any business, it must first start with understanding how that credit score is established, and which credit rating agency plays a prominent role in determining that rating. After all, a company's credit score is the single most important criteria in determining a company’s credit worthiness.
Who is Dunn & Bradstreet?
Among the many credit agencies that determine a company’s businesses credit score, one stands out above them all. Dunn & Bradstreet, commonly referred to as D&B, is the most common business credit rating service. While there are others, such as Equifax, Dunn & Bradstreet is the most commonly recognized leader in business credit rating services. Dunn & Bradstreet produce a report, referred to as the “D&B Report”, which is based on a company’s history of paying its bills. Within the report is a rating, or “paydex” score, that tracks a company’s ability to pay its creditors. These creditors could include the banks that lend a business money, the vendors and suppliers that sell it product, and the everyday bills such as the water and electricity bills.
How Does a Company Improve Its Credit Score?
A weighted average is the key to the paydex score. This means that a company’s ability to pay off its highest dollar value invoices, or highest amounts owing, will have a greater impact on its paydex score, than the lower amounts the company owes. Therefore, first and foremost, paying off the highest amounts is the first step to getting a better score on a D&B Report. The next step is to stay in close contact with all suppliers and creditors and keep them informed of when they’ll receive payment. Working closely with all creditors will help keep that paydex score reasonable, and keep a company’s creditors from reporting the company for late payments.
What Goes Into the D&B Paydex score?
The paydex score is a grade or scale. This grade is used by creditors to establish the risk versus reward of granting a company credit, and is also used to determine the interest rate on loans and business lines of credit. So, if a company has a high paydex score, which is good, then they should expect to get better credit terms and interest rates on loans and credit lines. This is because the financial institution lending that business money sees a company that pays its bills on time, and has judged it as a minimal risk. A low paydex score, which is bad, means that a company takes too long to pay its invoices, and is therefore seen as a higher risk. In this case, the interest rate is higher. This is why it is so important to always remain in touch with creditors and suppliers. By staying in touch with creditors, a company can play an active role in helping to mitigate the number of times a late payment is reported.
Aside from a company’s lending institutions, the credit terms granted by suppliers is also based on the paydex score within the D&B Report. So, if a company has a good paydex score, they should also expect to receive favorable credit terms from their suppliers. Unfortunately, a number of companies actually hold off on paying invoices, in the belief that they can get a better interest rate by leaving that money in an interest bearing account. However, more often than not, that interest earned is quickly eroded by a higher interest rate on business loans and credit because of the poor paydex score from late payments.
Ian Johnson - I currently run a business blog called www.driveyoursuccess.com. I have over 15 years consulting experience in production cell management, ...
