small-business-marketing

Business credit reporting is a booming industry these days. Some of the major names in consumer credit reporting, including Experian and Equifax, now offer services that cater to businesses.

For most businesses, however, Dun & Bradstreet is still the first and most important source of business credit risk-assessment data. And for Dun & Bradstreet users, the company's Paydex score remains the single best method for evaluating a firm's business credit score.

You're probably already familiar with the FICO scores used to assess consumer credit. Paydex is similar in that it quantifies business credit risk. Unlike FICO, however, Paydex looks only at whether a business makes its payments on time, according to the agreed-upon terms.

Here's what you need to know about how a Paydex Score works:

• A score can range from 0 to 100 -- the higher the score, the lower the credit risk.
• Scores of 80 or above generally mean that a business pays its bills early or doing the early-payment discount period.
• Scores of 70 or above reflect a company that pays its bills consistently on time and according to agreed-upon terms.
• Scores of 70 or below reflect a history of late payments -- lower scores may indicate payments 120 days or more overdue.

Like I said, Dun & Bradstreet's isn't the only business credit-scoring system in use. It is the most prevalent, however, and it's crucial for any small business that wants to establish and maintain a strong credit history.

Conversely, it's important for businesses to understand how they can use other companies' scores to assess their business credit risk; decide upon loan, trade credit, and payment terms; and monitor business credit for potential changes or signs of trouble.

Finally, you should know that while a Paydex Score is a good way to assess business credit risk, it's not the only tool available. In a future post, we'll look at some of the other business credit data sources a company like Dun & Bradstreet can provide.