The Paydex Score and your Business Credit

A little truth about Dun and Bradstreet's paydex score and business credit.

This from Wikipedia: 

Paydex is a term used in business, for a numerical score granted by Dun and Bradstreet to Business as a credit score for the promptness of their payments to creditors. The Paydex score is used for commercial organizations in a manner similar to the way the FICO score is used for individuals.^[1]
While individual credit score take a number of factors into consideration, Paydex is calculated based one single factor - whether a business makes prompt payments to its suppliers and creditors within the agreed upon terms of payment.
The Paydex Score ranges from 0 to 100 (best). A Paydex of 80 or higher is considered healthy for a company - that is a company is paying its suppliers and vendors on time, before they are due, or past due. Today most lenders and suppliers are looking for a score of 75 and higher.

This definition by wikipedia is true that a business with a 80 paydex score pays it's bills on time. However, when building business credit, your paydex means nothing if your business credit file isn't solid. A business credit file complete with updated company information and sometimes maybe even the company's financials would be considered by most lenders to be solid. Most people will assume that because they have a 80 paydex score they can go out and apply for business credit and get approved. That's a false assumption. A company can have a strong 80 paydex or a weak 80 paydex score.

For example, let's compare two companies with 80 paydex scores.

Company A has 4 trade experiences where they made on time payments. Each payment was for $50. So this company has 4 trades experiences at $50. This would obviously get them a 80 paydex. Not bad.

Company B has 15 trade experiences with a high trade payment of $15k. All payments were made on time. The average trade experience was for $500. This would be considered a solid business credit file.

Now, if both companies were applying for business credit based on their Dun and Bradstreet credit file, which company would get more favorable terms? Like high credit limits and NO Personal guarantee. It would obviously be company B because their business credit file shows activity and good payment history. Company A's business credit file would be considered weak in terms of the number of trade payments and the low payment history.

It is very important that small business owners understand the factors that make up a solid business credit file. Lenders, suppliers will look at other factors with in the paydex score because they know all paydex scores aren't created equal.

Visit the link below to get your copy of the business credit e-book. This is the ultimate guide for building business credit. Learn how to build a solid business credit file like Company B, and learn how company A can build solid business credit file in less than 90 days with the business credit e-book.

http://www.tradebit.com/filedetail.php/126427810  

Al,
Business Credit Consultant
alplouis@gmail.com
Twitter.com/alplouisea