PAYDEX score: the Dun & Bradstreet business credit rating

Understanding your business's financial health is essential for success, and one key metric that lenders, vendors, and potential partners often look at is your PAYDEX score. Created by Dun & Bradstreet (D&B), a leading business credit reporting agency, the PAYDEX score is a unique rating system that assesses your company's payment history and creditworthiness.

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In this article, we'll dive into what a PAYDEX score is, how it's calculated, and why it matters for your business.

What is a PAYDEX score?

A PAYDEX score is a business credit score developed by Dun and Bradstreet that evaluates a company's ability to pay its bills on time. The score ranges from 1 to 100, with higher scores indicating better payment performance. Unlike personal credit scores, which focus on an individual's financial history, a PAYDEX score solely reflects a business's payment reliability.

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D&B collects data from various sources, including vendors, suppliers, and lenders, to generate a company's PAYDEX score. This information is then used to create a comprehensive report that provides insight into a business's financial stability and creditworthiness.

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How are PAYDEX scores calculated?

To calculate your business’s PAYDEX score, D&B collects data from the suppliers and vendors you work with over a rolling 12-month period. Each supplier or vendor is considered a “Trade Experience”, and the payments you make to them are called payment experiences. To get a PAYDEX score, you need to have at least three payment experiences with at least two vendors.

The PAYDEX score is dollar-weighted, meaning that larger transactions have a greater impact on the score than smaller ones. Based on these factors, D&B calculates a PAYDEX score between 1 and 100. Low PAYDEX scores indicate that your business often misses payment due dates, while high scores demonstrate a strong track record of timely, responsible debt repayment.

What factors impact your PAYDEX score?

Several factors influence your business's PAYDEX score, the most significant being your payment history. D&B tracks how promptly you pay your bills and compares that information to the terms agreed upon with your vendors or suppliers. The more consistently you pay on time or ahead of schedule, the higher your PAYDEX score will be.

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Here are some key factors that can impact your PAYDEX score:

1. Payment history: As mentioned, your payment track record is the primary factor in determining your PAYDEX score. Late payments can significantly lower your score, while consistently paying on time or early can help boost it.
2. The number of trade experiences: The more vendors and suppliers that report your payment history to D&B, the more accurate and stable your PAYDEX score will be. Having a diverse range of trade experiences can demonstrate your business's reliability across different industries and payment terms.
3. Outstanding balances: If your business has a high number of outstanding balances or overdue payments, it can negatively impact your PAYDEX score. Maintaining a low balance and settling invoices promptly can help improve your score over time.
4. Credit utilization: While not as significant as payment history, credit utilization can also affect your PAYDEX score. Using a large portion of your available credit can be seen as a sign of financial stress and may lower your score.
5. Length of business credit history: Establishing a long-standing track record of timely payments can help strengthen your PAYDEX score. The longer your business has been responsibly managing its finances, the more reliable it appears to potential lenders and partners.

How many tradelines do you need to get a PAYDEX score?

To establish a PAYDEX score, D&B requires a minimum of two tradelines with three or more credit experiences. Tradelines are accounts that your business has with suppliers or vendors, such as utility companies, office supply stores, or other businesses that extend credit to your company.

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It's important to note that not all vendors and suppliers report payment history to D&B. To build your PAYDEX score, you may need to work with companies that offer trade credit and report to business credit bureaus. Some examples of tradelines that can help establish your PAYDEX score include:

• Net 30 accounts: These are vendor accounts that allow you to purchase goods or services on credit and pay the full balance within 30 days of the invoice date. Many suppliers that offer net 30 terms also report payment history to D&B.
• Business credit cards: Some business credit card issuers report payment activity to business credit bureaus like D&B, Experian Business, and Equifax Business. Using a business credit card responsibly and paying your balance on time can help build your PAYDEX score.

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As you establish tradelines and maintain a positive payment history, your PAYDEX score will become more robust and accurate, providing a clearer picture of your business's financial reliability to potential lenders and partners.

What is a PAYDEX score used for?

A PAYDEX score serves as a valuable tool for various entities to assess a business's financial reliability and creditworthiness. Some common uses of a PAYDEX score include:

1. Lending decisions: Banks, credit unions, and other financial institutions often review a company's PAYDEX score when evaluating loan applications. A higher score can improve your chances of securing financing and potentially lead to better terms and lower interest rates.

2. Vendor and supplier relationships: Many vendors and suppliers use PAYDEX scores to determine whether to extend trade credit to a business and on what terms. A strong score can help you negotiate more favorable payment arrangements and build trust with key partners.

3. Insurance underwriting: Insurance companies may consider your business's PAYDEX score when assessing risk and determining premiums for various types of coverage, such as general liability or property insurance.

4. Business partnerships: Potential partners, investors, or clients may review your PAYDEX score to gauge your company's financial stability and reliability before entering into a business relationship.

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Maintaining a strong PAYDEX score can open doors for your business, providing access to better financing options, more favorable trade terms, and increased trust among stakeholders.

What do different PAYDEX scores mean?

PAYDEX scores range from 0 to 100, with higher scores indicating better payment performance. Here's a breakdown of what different score ranges typically signify:

• 80-100: A score in this range is considered excellent and suggests that your business consistently pays its bills on time or ahead of schedule. Companies with scores of 80 or above are generally viewed as low-risk and highly creditworthy.
• 50-79: Scores within this range are considered fair to good, indicating that your business generally pays its bills on time but may have occasional late payments. While not as strong as scores above 80, companies in this range can still be seen as relatively reliable.
• 0-49: A score below 50 is considered poor and suggests a history of late payments or delinquent accounts. Businesses with scores in this range may face difficulty securing financing or favorable trade terms and may be viewed as high-risk by potential partners.

How long does it take to build a PAYDEX score?

Building a strong PAYDEX score takes time and consistent effort. The process typically involves the following steps:

Obtaining a DUNS number

If your business doesn't already have a DUNS number, you'll need to apply for one through Dun & Bradstreet. This process is free and can be completed online, usually within 30 business days. To locate your company's DUNS number, you can search for it on the D&B website using your company name or company registration number. 

Establishing tradelines

To generate a PAYDEX score, your business must have at least two tradelines that report your payment history to D&B. This can involve opening accounts with vendors that offer trade credit and report to business credit bureaus.

Building payment history

Once you have tradelines reporting to D&B, it typically takes at least three months of reported payment experiences for D&B to generate an initial PAYDEX score. During this time, it's crucial to make all your payments on time or early to establish a positive payment history.

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What can you do with an 80 PAYDEX score?

An 80 PAYDEX score is considered excellent and can open up numerous opportunities for your business. With a score in this range, you can:

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• Qualify for better financing options: A high PAYDEX score can make your business more attractive to lenders, increasing your chances of securing business loans with favorable terms and lower interest rates.
• Negotiate better payment terms with suppliers: Vendors and suppliers may be more willing to extend longer payment terms or offer discounts to businesses with a strong PAYDEX score, helping you manage cash flow more effectively.
• Attract potential partners and investors: A solid PAYDEX score can demonstrate your business's financial stability and reliability, making it more appealing to potential partners and investors.

Build business credit with a Ramp corporate card

One effective way to establish and build your business credit is by using a corporate card like Ramp. Ramp offers a charge card that simplifies expense management, automates accounting, earns cashback rewards, and allows you to set custom spend controls. By making purchases and ensuring timely payments, Ramp reports your payment activity to major business credit reporting bureaus, helping you strengthen your business credit profile over time.

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By consistently using your Ramp corporate card and paying your balance on time, you can demonstrate your business's financial responsibility and gradually improve your PAYDEX score and overall creditworthiness. This, in turn, can open up new opportunities for your business, such as better terms with vendors, increased borrowing capacity, and more favorable interest rates on loans.