You may be familiar with Paydex scores if you are a business owner. A Paydex score is an essential component of the puzzle if you intend to work with vendors and service providers or seek financing from a financial institution. It shows prospective lenders or creditors how financially stable your company is and is regarded as a reliable sign of your ability to make on-time bill payments. What you should know about your Paydex score and why it matters for your company are explained here.
What is a Paydex score — and how can it help your business?
Comparable to your credit score, a business credit score is called a Paydex score. Your Paydex score, which is provided by Dun & Bradstreet, indicates the likelihood that your company will make its supplier and vendor payments on schedule. Your business’s Paydex score ranges from 0 to 100, whereas your credit score is between 0 and 850.
You are more likely to pay bills on time or even in advance if your Paydex score is higher. A score above 80 indicates to creditors, lenders, and even insurers that your company poses little risk.
If a vendor, supplier, landlord, or lender purchases your company’s report from Dun & Bradstreet, they will have access to your business Paydex score. This may have an impact on whether or not you are approved for a loan, how much your insurance costs, the terms of credit that are offered to you, and whether or not commercial landlords will rent to you.
What factors impact your Paydex score?
Your business Paydex score is entirely dependent on what Dun & Bradstreet refers to as your trade references, in contrast to your credit score, which is determined by how well you manage credit.
Trade references are your payment experiences with suppliers and vendors who have voluntarily registered as Dun & Bradstreet members. Be aware that credit card payments are not regarded as trade references by Dun & Bradstreet.
For Dun & Bradstreet to compute your Paydex score correctly, it suggests that you have a minimum of four trade references on file. To calculate your business score, only transactions from the last two years are taken into consideration.
Recent, larger credit matters more
Recent trade references are given more weight than older ones because the Paydex score indicates the current probability that your company will make payments on schedule.
A metric that is dollar-weighted is the Paydex score. This implies that the amount paid to suppliers and vendors, whether in full or in part, also plays a significant role, with bigger payments having a bigger effect than smaller ones. For instance, your Paydex score will be significantly impacted by a $5,000 late payment as opposed to a $300 late payment.
How to improve your Paydex score
Payment of your suppliers and vendors on time is the best way to raise your score. It can be very beneficial to negotiate longer terms with these companies because it will be simpler for you to make payments on time or early. For instance, if you only have ten days to make a payment, you might run into problems if money is tight. This could lead to a late payment and a bad credit history.
You can also request that your vendors and suppliers provide Dun & Bradstreet with a report on their interactions with you. Because Dun & Bradstreet cannot provide a business credit score based on unreported experiences, your suppliers and vendors must provide this information whenever it is feasible.
You can raise your Paydex score by regularly checking it. Dun & Bradstreet provides a range of monitoring tools to assist you in keeping track of changes in your Paydex score and promptly resolving any issues that may occur.
How is a Paydex score used?
Many different individuals and businesses use your company’s Paydex score when determining whether or not to work with you:
Your score is used by financial institutions to decide whether to lend you money and under what conditions.
Your score is used by insurance companies to determine your business’s premium amounts.
Before accepting you as a tenant, landlords might review your score.
Before agreeing to work with your company, vendors, and suppliers will review your rating.
It is therefore in your best advantage to maintain the highest possible Paydex score for your business. A low score can impede your business operations and hinder your growth.
What do different Paydex scores mean?
A lender will perceive a higher risk of late payments from a business with a lower Paydex score.
|Paydex score range
|80 to 100
|Within 30 days before due date
|50 to 79
|2 to 30 days after due date
|0 to 49
|31 to 120 days after due date
Remember that you can obtain the best rates and terms without having a perfect score. That would entail paying all of your bills 30 days ahead of time, something that very few, if any, companies can truly accomplish. Maintaining a score of 80 or higher indicates to suppliers and vendors that your company is able to make its bill payments on schedule.
The bottom line
Monitoring your Paydex score is essential if you want to operate a profitable business. Everything is impacted by this business score, including getting the best insurance rates and obtaining supplies and financing.
The good news is that you can take steps to improve your business credit score if it’s not as high as you’d like. You can start moving things along in the right direction by paying your suppliers and vendors on time or early, encouraging your trade references to report to Dun & Bradstreet, and keeping an eye on your Paydex score.
Additionally, check out our list of the top small business cards to aid in the launch or expansion of your company if you require short-term funding.