For small businesses, Dun & Bradstreet creates a business credit report that could be viewed as similar to a personal credit report for businesses.
This is the report that banks and other lending institutions may consider when determining whether they should give you a loan—as well as what interest rate may be assigned to your loan.
Likewise, vendors and other companies you potentially want to work with may consider the D&B report to determine how likely you are to pay the bill on time, among other things about your company.
“No matter what the state of your business, you should offer as much data as possible,” Amber Colley, director at D&B, told Small Business Trends.
Having a complete picture of your business’s credit information is much better than having no information at all, she added. “At least you can speak to the story behind the information, even if some of the data isn’t as positive as you would like.”
Also it is important to make available the appropriate kind of information, meaning payment experiences that are indicative of your company’s size, Colley added.
“If I continually have vendors I pay $120,000 every month on terms on time, that is great information to have in my business file,” Colley said. “It indicates the amount of business I can support.”
What it boils down to is: Not all payment experiences are equal.
There is a “weighted” average, and vendor experiences with higher dollar amounts can carry more weight. Small business owners need to pay these larger vendors on time and if possible work with them to request that they report this to D&B, Colley said.
D&B’s small business credit reports have five key scores—and even if you try to report as little information about your company as possible, D&B can still create a report based on available information.
“Scores can be impacted because there is little to no information in the file,” Colley said.
Also, it is possible that you can be turned down or potentially be given a higher-rate loan if your scores are low and/or based on a lack of information.
Of the five scores in the business credit report, the following two are performance-driven, meaning they’re based on historical trends.
- The D&B PAYDEX score rates your business from 1 to 100 and is an overall assessment based on the past two years. It focuses on how many vendors you deal with, looking specifically at each payment agreement and the amount paid to each vendor.
For example, an 80 score is good, meaning you paid vendors on time. A perfect 100 score means you paid all vendors 30 days in advance of the bill’s due date. Below 80 means you paid bills late; scores get progressively lower the later you paid each bill. See this for detailed correlations between scores and average days to pay.
- D&B Rating indicates a company’s net worth based on financial statements, as well as the company’s overall condition
Note: If a company’s financial statements are not provided, the score is based on company size, industry, or other related factors.
“If a company doesn’t provide info, D&B will base certain scores on other related information in their file,” Colley said, noting that some small businesses “believe if they keep their financials privately held or don’t provide number of employees or any other data that is relevant, then there will be no business credit information reported on them.”
The belief, she added, is erroneous.
“What people want is the full story,” she said. “The business credit report is just one piece of the puzzle when they are making their decisions on the terms and conditions to partner with you. [Lenders and vendors] use a lot of difference pieces. And if you can give those making these types of financial decisions the story behind the information, it is a much easier conversation.”
A vendor seeking to jump-start growth or enlarge its market share may be more willing to take on a certain amount of risk. There are no absolutes; companies that review your D&B business report tend to have their own criteria and terms in order to decide if they are willing to do business with you.
The other three scores are called “predictive scores,” Colley said, noting D&B looks at historical information to predict your performance behavior over the next 12 months.
- The Delinquency Predictor score ranges from 1 (the best) through 5. It predicts whether a business will pay its bills on time over the next 12 months.
- The Financial Stress Score also is based on 1 (the best) through 5, and indicates the chance that a business will experience financial distress in the next 12 months.
- The Supplier Evaluation Risk Rating runs from 1 (the best) through 9. This score predicts a business’s likelihood of ceasing operations or becoming inactive over the next 12 months.
Image: Dun & Bradstreet