Running a company almost always entails some form of borrowing or contracting for your business. When attempting to get a business loan or contract a deal with a supplier, the lender and supplier need a way to determine if your business is worth working with. Your company might be a great idea on paper, but in the eyes of lenders and suppliers, an unknown business could mean big risk.
Your company’s business credit history is therefore critical when it comes time to get a business loan or sign contracts. One of the most well-known business credit agencies is Dun & Bradstreet. All types of companies across the globe use this agency to evaluate firms they’re considering doing business with.
Read on to find out what a Dun & Bradstreet rating is, and how it affects your business.
What Is Dun & Bradstreet?
Dun & Bradstreet, or D&B, is the oldest credit bureau in the U.S. You’re likely already acquainted with well-known credit bureaus like Equifax, Experian and TransUnion since they provide your personal credit score. Dun & Bradstreet, on the other hand, only deals with business credit. This makes Dun & Bradstreet an ideal credit agency for major lenders and the federal government to use when considering doing business with companies.
Dun & Bradstreet produces a business credit rating system that assesses businesses in terms of their creditworthiness and financial health. Your business credit score is treated a little differently from your personal credit. For example, lenders aren’t required to tell you that you’ve been turned down for a loan based on your business credit score, whereas they do for your personal credit. Another issue is that many business owners don’t know how to interpret their business credit score, which is on a scale from 0 to 100, not the familiar scale of 300 to 850 that comes with your personal credit score.
When it comes to Dun & Bradstreet, your business credit score is just one aspect in its multipart system of assessing business creditworthiness. Dun & Bradstreet’s business credit system can be divided into two rating systems:
- D&B Rating
- D&B PAYDEX score
It’s important you’re familiar with both and understand the difference. Read on for more information.
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What Is a D&B Rating?
The D&B Rating provides a general overview of your business’s creditworthiness and financial standing. Dun & Bradstreet have various score and rating systems for businesses and the D&B Rating is just one very important component of your company’s business credit profile.
There are two parts to the D&B Rating — the Rating Classification and the Composite Credit Appraisal. Here’s a description of each of these two components:
|Component of D&B Rating||What It Is||Highest Rating||Lowest Rating|
|Rating Classification||Rates business’s size based on worth or equity using a combination of numbers and letters||5A, companies with net worth of $50 million or more||HH, companies with net worth under $5,000|
|Composite Credit Appraisal||Measures overall creditworthiness of a business||1, most creditworthy||4, least creditworthy|
The Rating Classification uses a combination of numbers and letters to rank a company’s size based on net worth or equity. In order to receive this rating, you must supply Dun & Bradstreet with a current financial statement of your business.
The second component, Composite Credit Appraisal, ranks your company’s overall creditworthiness on a range from 1 to 4, with 1 meaning your company is among the most creditworthy businesses. Dun & Bradstreet formulates these scores based on data such as payment histories, financial information, public records, years in operation and other factors. The highest Composite Credit Appraisal score you can get without supplying Dun & Bradstreet with your company’s financial details is a 2, so it’s critical you submit this information if a D&B Rating is important to your business.
What Is Dun & Bradstreet PAYDEX Score?
Dun & Bradstreet’s PAYDEX score is the second principal part of its overall business credit system. The PAYDEX score is actually a bit more similar to how your personal credit score is assessed. In Dun & Bradstreet’s PAYDEX score, the agency evaluates factors like how quickly your business pays back lenders, rather than your company’s net worth or equity.
To get a PAYDEX score, you first have to obtain a D-U-N-S Number from Dun & Bradstreet, which stands for Data Universal Numbering System. A D-U-N-S Number is a unique nine-digit number that Dun & Bradstreet uses to identify businesses throughout the world. There’s no charge to create your D-U-N-S number, and once you receive it, you can get your PAYDEX score; without a D-U-N-S number, Dun & Bradstreet will not give you a PAYDEX score at all.
Why Is a D&B Rating Important?
By providing an overview of your company’s creditworthiness and finances, your D&B rating is used by lenders to assess and manage risk — namely, the risk of lending to you and your business. Your business credit score is essential for banks and lenders to understand the financial standing of your company, and whether they should do business with you.
Since a D&B rating is so fundamental to lending, being able to check it and monitor any changes is important for you as a business owner. This is where your D-U-N-S Number comes in because it enables you to monitor both your D&B Rating and PAYDEX score through D&B’s CreditSignal program. CreditSignal is a free service provided by Dun & Bradstreet that alerts business owners when their business credit score changes. While the business credit monitoring is free, you have to pay for a full business credit report from CreditSignal to get your exact D&B Rating and PAYDEX score.
Here are some of the business credit report plans Dun & Bradstreet offers, beginning with the most basic:
- Credit Evaluator Plus: $61.99 for one company report
- Business Information Report: $121.99 for one company report
- Business Information Report On Demand: $189.00 for one company report
All types of businesses and institutions, such as potential lenders, suppliers, customers, banks and insurance companies, can purchase your company’s business credit profile through Dun & Bradstreet. Even places you haven’t approached yet could know your business credit history. This is why it’s essential to understand how changes to your D&B rating can impact your business, such as its ability to borrow money or get better terms from lenders or suppliers.
Factors That Could Affect Your D&B Rating
Here are some the reasons your D&B rating could change:
- You submit new or revised financial statements about your company
- Your timeliness, or lack thereof, when making payments to suppliers or lenders
- You increased the level of borrowing for your business
- Your company is facing legal action that could disrupt business
Thus, just as a late credit card payment affects your personal credit score, when your business is late on a payment, its business credit score can take a hit, too.
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The Bottom Line
Your business credit score and history can have tremendous effects on your business, effects that you might not even be aware of until it’s too late. Hence why monitoring and staying on top of your D&B Rating is crucial if you want to maximize your company’s success.
Here are some basic ways to improve your D&B Rating:
- Keep your credit utilization ratio down, ideally with a debt-to-credit ratio of 50 percent or below
- Pay invoices ahead of the due date so that your business can be classified as paying “better than terms.”
- Establish and maintain a variety of credit types with a history of timely payments.
If you take these steps and keep an eye on your rating, you can find ways to improve your D&B rating, which can lead to more favorable business relationships and loan terms in the future.
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