PAYDEX: Understanding Your Score
I was recently asked this question by one of our Twitter followers: "So many different descriptions... What exactly is a "good" Paydex score?" At first, I thought she was kidding. I mean, really... How many different explanations can there be?
But then I searched the Twitter hashtag #paydex that I saw what she was talking about. There were so many people and companies touting their own versions of what a Paydex® score is, and ways to get one, and what is considered a good score... There was even one high-dollar, so called "credit guru" who promotes a service to get clients "a perfect 100 Paydex score in 90 days." It was amazing, and actually, a little scary...
While employed at Dun & Bradstreet®, people were actually fired for identifying any Paydex® score as being a "perfect" score. It became such an issue, I instituted into the trainee manual to instead define the Paydex® score as ranging from 0 to 100, with 80 being the "optimum" score.
Since there is so much misinformation out there, here's some legitimate information every business owner or manager should know:
A Paydex® score is just one of six creditworthiness scores provided by Dun & Bradstreet® (also known as D&B®), the world's oldest and largest corporate credit reporting agency. Over its 180 year history, D&B® has devised specific algorithms to assign a strategic value to a business's history of repaying debt. The higher the score, the more promptly debt is paid. A lower score is indicative of slow payment, collections, or bad debt write-off.
The Paydex® score is dollar-weighted, placing a higher value to larger debt being paid promptly. Even so, those with high positive payments can be negatively impacted if they have multiple instances of slow payment (even if those payments are of a lower value). Current outstanding debt will have a higher value than older debt, and collections or bad debts can significantly impact this and other D&B scores. You can see a full Paydex® rating chart here.
An 80 Paydex® score is considered "optimum" because it indicates a commercial concern pays the vast majority (if not all) of their business debt on-time. While it is possible to achieve higher than 80, to do so would require your suppliers report to D&B® that you primarily pay on discount, known as "anticipatory" payments. Commercial operations who pay their debts using discounted net terms — such as 2% 10 Net 30 — can often find themselves with a Paydex® score above 80.
In my eight years experience, both while working for D&B® and after starting my own business credit-enhancement business, the highest Paydex® score I have ever seen was 93, and that was due to a $10m payment being auto-reported to D&B® whereas the corporation used a 2% discount and paid within 10 days of invoice date. While it is not uncommon to see an 82 or 84 Paydex® score, a "perfect 100" would be more rare than finding a single gold coin in the middle of the Pacific without a map.
The "optimum" 80 Paydex® score is not unobtainable. In fact, it is very simple. Any business who has three or more vendors or suppliers who report only prompt payment habits will achieve this overtly acceptable score. Lenders and creditors will typically accept a score of 77 or above when making credit approvals, and many consider 80 to be a "perfect" score. Suppliers can either auto-report to the business credit file or be manually submitted to D&B®, at which time acceptable suppliers will be contacted to verify your company's payment history.
If there are slow payments negatively affecting your Paydex®, you may want to dispute them to see if they can be removed. If they return to the report, you can dispute them up to three times before specifically requesting they be permanently blocked from the file. It should be noted that re-disputing slow pays that cannot be removed could impact other scores within the report.
You can also out-weigh negative payment habits. This is accomplished in two ways: 1) by re-ordering from the same supplier and making sure to make your new payment promptly so the new payment lessens the impact of the previous offending payment, or 2) by adding multiple other vendors or suppliers who will report positive payment values, especially those that will out-weigh the offending payment. Either method will help to boost a sagging Paydex® score.
Creditors and suppliers often look beyond the Paydex® score, though, relying more heavily on D&B's predictive indicators, such as the Delinquency Predictor Score®, Financial Stress Score®, and Supplier Evaluation Risk rating. Most credit departments will not consider an application for approval unless the applicant's Dun & Bradstreet profile also includes a full D&B Rating®. To achieve a full D&B Rating®, D&B® needs to have all pertinent details about the business and at least four credit experiences are required in the file.
Reach out if you would like to receive a free one-on-one business credit analysis. We are also available to help you order a free D&B® D-U-N-S® number for your business. You can book a free consultation online or by calling us directly at 800-918-7505 if you need assistance.