Paydex Score: Breaking Down the Dun & Bradstreet Business Credit Score

What Is a Paydex Score?

A Paydex score is a proprietary business credit score generated by Dun & Bradstreet. The score determines your business’s creditworthiness, or how promptly you repay your vendors and suppliers. Scores range from 1 to 100.

Establishing credit is an essential part of growing your business. When you begin to manage your business’s finances, and especially when you consider applying for a business loan, you’ll likely come across something called the Dun & Bradstreet Paydex score. You might ask yourself, “What is a Paydex score?” (Or even, “Who are Dun & Bradstreet?”) These are valid questions—and more important than you might initially think.

Here’s a quick primer on what is a Paydex score, what is a good Paydex score, how to check your Paydex score, and why it’s so important for business owners to understand (and keep track of) this information.

Paydex Score Defined

Put simply, a Paydex score is a credit score for businesses. These proprietary scores are generated by Dun & Bradstreet (D&B). Unlike personal credit scores, which range from 300 to 850, D&B calculates Paydex scores on a range from 1 to 100.

D&B is a business services company that provides businesses with commercial data and analytics, and they’re considered the gold standard in determining business credit standing. As of 2013, the company’s database contains information on more than 265 million companies across 200 countries worldwide.

Paydex scores do operate much like consumers’ FICO credit scores, but there are some key differences. Rather than reflecting your personal credit history, your Paydex score determines your business’s creditworthiness—in other words, how promptly your business pays your creditors and suppliers, or your payment history performance.

Also know that your personal credit score doesn’t affect your Paydex score. But here’s why it’s so important to separate your business and personal finances: a personal credit card used to make business purchases that is paid on time will not help increase your Paydex score—but personal purchases made through a business account (that is reported to Dun & Bradstreet) and which aren’t paid on time will affect your score.

Why Your Paydex Score Matters

Not only is it good business practice to pay your creditors and suppliers on time, but lenders look at these scores to determine financing opportunities for your business.  

Often, lenders, vendors, suppliers, and potential business partners reference your Paydex score before agreeing to work with you, as this score indicates how reliably you meet your debt agreements and your overall financial stability.

As is the case with your personal credit score, businesses with healthier Paydex scores are more likely to be approved for financing, and for better terms right off the bat—by which we mean higher loans amounts, longer repayment terms, and lower interest rates. Good Paydex scores can also put your business in a position to negotiate better terms with your lender, as it’s evidence that you’re reliable with your debt obligations.  

Your Paydex score might also be referenced by landlords with whom you want to rent space, insurance companies needed to insure your business assets, and various types of customers.

How Your Dun & Bradstreet Paydex Score Is Calculated

The Paydex score ranges from 1-100, with 1 being the worst and 100 being the best. The higher the number, the more likely the business is to pay their bills on time or early. Though your entire payment history is on your Dun & Bradstreet file, only your payment history for the last two years is calculated to make up the Paydex score.

Unlike the individual FICO credit score, which takes many factors into consideration, the Paydex score only calculates one factor: timely payment based on terms agreed upon between a business and a vendor. The scores are based on trade experiences vendors report to Dun & Bradstreet on a rolling, 12-month basis. Dun & Bradstreet can take into account up to 875 individual business partners when calculating a business’s Paydex score.

The Paydex score is “dollar-weighted,” meaning that each vendor is weighted in terms of the number of transactions and the overall dollar value of those transactions. In other words, vendors with whom you spend the most money and work with most frequently will be weighted higher in your score than less expensive vendors or suppliers you use less frequently.

What Is a Good Paydex Score?

As a reminder, your Paydex score is between 1 and 100. Businesses with the highest Paydex scores are considered more likely to repay their debts on time, based on their track records repaying vendors and suppliers.

Most sources say you should try to keep a Paydex score of at least 75 in order to be considered in good standing. A score of 80—a really great score—means that a business has paid their bills exactly on time. Anything higher than that means the business consistently pays their bills early. Businesses with scores between 80-100 are considered at very low risk of late payment. And 50-79 is considered a medium risk, and anything lower than 50 is considered a high risk of late payment. If you can keep your business in the 80-100 range, you’re in excellent shape.

Here’s a breakdown of Paydex scores and their attendant payment habits, according to Dun & Bradstreet’s terms:

• 100: Pays 30 days sooner than terms
• 90: Pays 20 days sooner than terms
• 80: Pays on due date
• 70: Pays 15 days beyond terms
• 60: Pays 22 days beyond terms
• 50: Pays 30 days beyond terms
• 40: Pays 60 days beyond terms
• 30: Pays 90 days beyond terms
• 20: Pays 120 days beyond terms
• U/N: Unavailable/no payment

How To Get a Paydex Score

To get a Paydex score, you’ll first need to apply for a Dun & Bradstreet DUNS number through their website to establish a business credit profile. Note that Dun & Bradstreet needs at least four separate trade references—that is, suppliers or vendors that you’ve worked with—to report to a company’s file for a Paydex score to be calculated.

Because of this, it can be tough for new and small businesses to establish their Paydex score in the first place. But as long as they’re invoiced with set payment terms, you can use a variety of partners as trade sources—think your business’s lawyers, accountants, and landlords.

Once you’ve established your DUNS number and built up your business credit, you can check your score by requesting a business credit report through D&B.  

How to Improve Your Paydex Score

The simplest way to bump your Paydex score is to pay your bills, especially your most expensive bills, on time or ahead of their due date—20-30 days early, if possible. This is a surefire way to crank up a Paydex score.

But remember: Your Paydex score is contingent upon the specific payment terms you set out with your vendors, so make sure you’re being realistic when agreeing to them. If you’re struggling to make a net-21 payment schedule, work with the vendor to increase the agreement to net-30 or even net-45. This increases the probability that you will pay your bills on time or early—which inevitably increases your score.

Here are a few other ways you can improve your Paydex score:

• • Open up tradeline business accounts: Tradeline accounts are basically credit accounts you can open with suppliers or vendors. They are typically net-30 accounts that require full payment within 30 days. Many office supply stores offer tradeline accounts, and stores like OfficeMax, Quill, and Viking report back to Dun & Bradstreet on the status of accounts. Just make sure to keep your accounts current and pay them on time every month.
  • Open a business credit card: Keep your credit active by using a business credit card. Use the card only for small purchases, and pay it off monthly to keep your credit utilization ratio low. Note that this card should be in your company name, not your personal name.
  • Avoid opening too many credit products: Applying for too many credit cards or loans within a short period of time can actually hurt your Paydex score, as most lenders make hard credit inquiries into your score when you apply.
  • Keep checking your Paydex score: Regularly request a copy of your current Paydex score from D&B. Make sure it’s complete and up to date with all current and accurate transactions. If you notice a discrepancy or mysterious activity on your credit report, contact D&B directly to clear it up.
  • Encourage your vendors to report positive activity: Your Paydex score hinges on information reported by your vendors, so your timely (or early) repayments can’t improve your Paydex score if D&B doesn’t know about it! That said, you can always add missing transactions to your file through D&B customer service if your vendor doesn’t report directly.  

Bottom line? Always pay your vendors and suppliers according to the payment terms you’ve established, or early whenever possible.

What You Need to Know About Paydex Scores

As a business owner, it’s important that you establish a Paydex score and check it often.

Even if you’re not yet in a position to seek business funding, it’s likely that you will at some point down the line. As a reflection of your business’s reliability and financial solvency, most lenders take a look at your Paydex score, alongside your personal credit score, to determine whether you’re eligible to take on additional debt and, if so, what amount and terms they’ll offer you. (That’s among other information you provide on your business loan application, of course.)

But beyond factoring into your lender’s credit decision, your Paydex score also plays a role when prospective customers, landlords, insurance companies, suppliers, vendors, and other partners are considering doing business with you.

With a strong Paydex score, you’ll simply have more options available to you as a business owner—and with more options comes more opportunities for growth.  

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from Fundera Ledger https://www.fundera.com/blog/paydex-score/