Over ten years ago I started a business, and I was not familiar with the term "business credit". Fast forward to today I have built, ruined, and built my business credit a few iterations. In this article we are going to talk about the basics of business credit rules and what creditors look for when you asked them to extend a line a credit to your business.
Duns & Bradstreet controls majority of the business credit reporting in the US. Like Experian business and Equifax business, Equifax being the lesser in reporting. So when building our business credit profile, we must follow the Duns & Bradstreet rules. These rules we can basically sum it as two thing timely payments and types of credits.
Duns & Bradstreet reports and assigns a rating to your business, and that rating is your paydex rating and score. Your paydex score is calculated by how timely your business pay. The Paydex is not like a fico score. It's totally different. Paydex assigns a numerical score from one to 100 for your payment performance. It is calculating using your last 875 payments reported by vendors. These are weighted average score and gives more weight to the trade accounts that report higher
amounts. The goal for your company is to produce a paydex score 80 or above.
How can you generate or produce a paydex score above 80? Well paying on-time would just generate a score of 80. Here are some typical payment timings and approximate scores that your business can obtain.
25 day prior to due date -- paydex score: 100 -90
20 days prior to due date -- paydex score: 90-86
15 days prior to due day -- paydex score: 86-83
10 days prior to due date -- paydex score: 82-80 (paying on due date)
5 to 20 day late - Paydex score: 70 and below (DO NOT WANT)
There other factors that are weighted in on your business credit profile. This has to do with your company's financial proformance. If your company has provided financials or a net worth, a financial strenght score will be assigned between two and four. So note: if you have not been in business over a year you will not will not have a credit worthiness for a business loan.
Over the next few months we will be talking about building your business credit. If you been in business you should check your business credit and if your are new you to business you should start here. Leave your questions and comments below.
Sending All My Good To Ya!
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