As a business owner, you have heard the term PAYDEX but may not know exactly what that term means and more importantly what it means for your business. When trying to secure funding for a business loan your company’s PAYDEX score will be an important determining factor.
What is PAYDEX?
Although the exact method of calculation is considered proprietary to Dunn & Bradstreet, the PAYDEX is a score tabulated by analyzing a businesses’ trade references and payment history to its creditors. The score is akin to an individual’s FICO credit score and is used in mostly the same manner. Your business’ PAYDEX score is essentially its credit score that shows the financial risk associated with your company.
How is Your PAYDEX Score Determined?
Ranging from 1 to 100, the higher the score the less risk attributed to your business and the higher the likelihood you will repay your business loans and other financial obligations.
Who Uses the PAYDEX Score?
Anyone can access a business’ score by ordering a business credit report. Oftentimes businesses are unaware that their PAYDEX score is being used by others in their business dealings with their company.
Some examples of entities that would purchase your business credit report:
- Lenders will use your business’ score to make loan decisions and set terms for credit
- Clients, especially those with heavy purchasing power, may look into your report to make sure you will be a reliable company to purchase from.
- Landlords will use the report and score to determine whether you will be a reliable tenant and for possible deposit requirements.
- Suppliers: Equipment and inventory suppliers will use the score to create payment terms and agreements.
- Prospective Investors: They want to see they are investing in a viable and profitable company.
- Competitors: Many business owners are shocked to find out that competitors are using their PAYDEX score and credit report to research their competition. It is a common practice and one that any business owner can take advantage of.
How Can You Improve Your PAYDEX score?
Make payments on time: First and foremost you should make all payments to landlords and creditors in a timely fashion and make payments early whenever possible.
Encourage your associates to report: One of the biggest downfalls to the PAYDEX score is that your business associates such as landlords, suppliers, etc. must report your payment history in order to have an impact on the score. Encourage everyone you have a positive business relationship with to report your payment history to PAYDEX in order to improve your score.
Have a diverse credit landscape: Try to show that your business holds different types of credit such as leases for building and equipment, business credit cards, business loans and lines of credit.
Continue to use your credit: Just like your personal credit you must build and use your business credit in order to grow it. Use your credit wisely and effectively. Keep balances low with regards to limits, try to pay off credit cards at the end of each month and you will see an improvement in your score.
Monitor your report regularly: Stay on top of your PAYDEX score by routinely ordering a business credit report. Look for any areas of improvement as well as possible inaccuracies or indications of fraudulent transactions in your business’ name.
How Can RidgeStone Capital Help You?
At RidgeStone Capital we can help you understand the intricacies and impact of your PAYDEX score for your business. We can help you find ways to improve your score and assist you to secure the funding you need to expand your business.