|
July 2008
“Remember that credit is
money”
– Benjamin
Franklin
Do
you know your Paydex score?
Good
credit is the lifeline of your business and knowing your Paydex
score may be one of the most important aspects. Your company’s
score is the key to obtaining financing, setting lease payments,
creating payment terms with suppliers, and even determining
insurance premiums.
Paydex is a business scoring model developed by the financial
reporting company, Dun and Bradstreet (D&B). The Paydex
score is a dollar weighted average of how a company has paid its
bills over the past year, based on the vendors that report to
D&B. Simply put, Paydex scoring looks at one thing:
whether a business makes payments on time and meets creditors’
payment terms.
It is
important to keep in mind that while your Paydex score is crucial,
lenders will often pull and weigh personal credit for the company’s
principals as well.
It’s
not impossible to attain business financing without a Paydex score,
but the process won’t be as automated so it will take longer.
It often entails the potential creditor calling listed credit
references and waiting for their replies.
Paydex scores range from 1 to 100. A high Paydex score (much
like a high FICO score) means a lower risk. Most lenders want
to see that a company’s Paydex score is at least 65 -
70. Low Paydex scores will almost always lead to limited
access to business credit as well as significantly higher interest
rates.
A
score of 100 represents a business that pays their bills prior to
the invoices being sent. Businesses with a score of 80 are
those that pay their bills precisely on time. To increase your
score beyond 80, you must pay your bills ahead of time.
Businesses must be vigilant in making payments to vendors and
creditors within the terms of payment. However, keep in mind
that you only receive ratings from those vendors that report to
D&B.
The
table below helps to illustrate the scores:
|
Paydex Score |
Payment |
|
100 |
Anticipated early |
|
90 |
Payment
within discount period |
|
80 |
Prompt
Payment |
|
70 |
Payment if
14 days beyond terms |
|
60 |
Payment is
21 days beyond terms |
|
50 |
Payment is
30 days beyond terms |
|
40 |
Payment is
60 days beyond terms |
|
30 |
Payment is
90 days beyond terms |
|
20 |
Payment is
120 days beyond terms |
|
UN |
Unavailable |
As
with your personal credit, it is important to monitor your business’
score to watch for errors and avoid sloppy reporting by
vendors. To check your Paydex score or for more information:
visit the D&B website at www.dnb.com/us or
contact them by phone at (877) 753-1444. |
