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Published By Janet Gershen-Siegel at May 30th, 2018
Do you need help decoding your Dun and Bradstreet business credit report? Not to worry: we can help you with your D&B credit report.
For businesses, one of the big credit reporting agencies is Dun & Bradstreet, as their PAYDEX score of your company can be the reason why your business gets credit – or it doesn’t. You need to keep on top of your PAYDEX score, as with all of your other business credit scores. D & B provides a sample report and even some higher level guidance in how to interpret it. Here, we’ll go over the sections in turn.
A Dun & Bradstreet Report (a D&B Report) is a database-generated report. The business services giant produces such a report to help its clients in making decisions regarding new credit applications.
The main reason for a client making use of this kind of a report is to engage in credit risk monitoring of merchants, suppliers, and business partners. This assists companies make informed business credit determinations and steer clear of bad debt.
Dun & Bradstreet takes several factors into account in developing such a report. These include a predictor of payment delinquency; how financially stressed a company is versus similar businesses; an evaluation of supplier risk; credit limit recommendation; D&B rating; and PAYDEX score. So let’s consider all these factors in turn.
As you might expect, the report starts off with basic identifying data such as company name and address, and the date of the report.
Here, D & B includes the company founding date and the number of employees. This section includes working capital, sales, and net worth.
The report contains two graphs:
The report defines the terms next to the graphs.
A D&B Rating is designed to help companies quickly assess a business’s size and composite credit appraisal. The rating is based on information in a company’s interim or fiscal balance sheet, and also an overall evaluation of the firm’s creditworthiness.
5A to HH Rating Classifications show company size based on worth or equity as computed by Dun & Bradstreet. The figure is important because a company’s size can be a reliable indicator of credit capacity. Dun & Bradstreet assigns such ratings to businesses which have supplied a current financial statement.
Here the report has two more graphs:
There are two more graphs in this section:
This graph splits up risk category into high, medium, and low.
This more complex graph shows the following:
This is from high risk to low risk.
And this is from high risk to low risk.
So, this is from descriptive to predictive (this measures how much information D & B is basing its report on).
This section has Standard Industrial Classification (SIC Codes) and North American Industry Classification System (NAICS Codes).
There are two graphs in this section:
This portion also includes the prior D & B rating and recent payment activity, including average high credit, highest credit, and total highest credit.
This is another complex section. Fortunately, Dun & Bradstreet provides definitions next to the four graphs:
This is a number, 1 through 4. So it comprises the second half of a firm’s rating. It reflects Dun & Bradstreet’s overall assessment of that business’s creditworthiness. Analysis of company payments, financial information, public records, business age and other important factors, when available, are interpreted to generate a Composite Credit Appraisal.
When a company does not supply current financial information, they cannot get a Composite Credit Appraisal rating of better than a 2. Moreover, the 1R and 2R Rating categories indicate company size based on the total number of employees for the business.
These rating categories are assigned to company files which do not contain a current financial statement. Employee Range (ER) Ratings apply to certain lines of business not lending themselves to classification under the D&B Rating system. These kinds of businesses are assigned an Employee Range symbol based upon the number of employees and nothing more.
As a whole, when Dun & Bradstreet does not have all of the information they need, they will signify as much in their reports. However, the absence of some pieces of information does not necessarily mean a certain firm is a poor credit risk.
This part has narrative information about the company, including the name(s) of its officer(s) and director(s), along with any affiliate information, if applicable.
In this part, the report reveals where the business incorporated and the date of incorporation along with the corporate registration ID.
This section is mainly concerned with whether the business might be considered for socioeconomic programs, such as whether it is minority-owned or is considered a small business.
The part contains basic company information like the business you are in, the net payment terms you have with creditors, number of employees, the type of facilities you have, and where the facilities are (e. g. within a business district or the like).
This section includes the SIC and NAICS codes for your company.
Your main branch is here; if you only have one office, then it’s here.
If your company has any subsidiary offices, they are here.
So this section compares various data points for the past three years, such as current assets and liabilities.
Here, the report compares your company to its industry median and the industry quartile when it comes to particular data points, such as short term solvency and assets sales.
This section contains detail on current assets, non-current assets, current liabilities, and non-current liabilities.
This section summarizes any judgments, liens, suits, and UCC filings your company has.
This section provides a bar chart based on the previous section.
Here are the details regarding any judgments against your company.
So here are the details regarding any liens against your company.
Here are the details regarding any UCC filings impacting your company.
Here is a graph from high to average to low for your company’s credit risk.
So this part compares your company’s delinquent payment history to similar companies.
Dun & Bradstreet uses predictive models to ascertain how likely a company is to be overdue with its payments. Predictive scoring is a means of using historical information to try to predict future outcomes. It involves identifying the risks inherent in a future decision. It does this by examining the relationship between historical information and the future event.
This represents an objective and statistically derived counterpart to subjective and intuitive analyses. Such scoring allows a business to rank and order accounts based on the chance of an event occurring, such as delinquent payments. However, Predictive Scoring only shows a statistical chance, not a guarantee.
This section graphs your company’s credit score as opposed to similar companies.
Dun & Bradstreet generates Financial Stress Scores to forecast the chance of business failure over the upcoming twelve months. D&B defines business failure as a company which gets legal relief from its creditors; or ceases its business operations without paying all of its creditors in full. It could be a business that voluntarily withdraws from business operations thereby leaving unpaid obligations; or enters into receivership or reorganization. Or it could be a business makes some kind of arrangement for the benefit of its creditors. So this is based upon the information found within D&B’s commercial database.
So the score ranges from 1,001 to 1,875. A score of 1,001 stands for the highest chance. While 1,875 is the lowest chance of business failure.
This graph contains your company’s financial stress class from high to average, to low.
This is a segmentation of the scored universe into five distinctive groups, ranging from 1 to 5. A 1 represents businesses with the lowest chance of failure. While a 5 represents firms with the highest chance of failure.
This class makes it so a customer can quickly segment their new and existing accounts into various risk segments. So this is to identify suitable marketing or credit policies. For any businesses showed as being Discontinued at This Location; Higher Risk; or Open Bankruptcy, those records automatically get a 0 score.
And this section has the chance of failure of your business.
A Financial Stress Score Percentile is shown as a 1-100 ranking. So a 1 percentile has the highest chance of failure. And a 100 percentile has the lowest chance of failure.
A financially stressed company is characterized as a firm which has discontinued operations following assignment of bankruptcy; voluntarily withdrawn from business operation leaving unpaid obligations; discontinued operations with loss to creditors; or is in receivership or reorganization, or has made some sort of an arrangement for the benefit of its creditors.
So this section paints a picture of your company’s financial stress percentile versus similar companies.
The Financial Stress Percentile compares the company in question. So this is to other businesses in the same location, industry, number of employees, or number of years in the business. Financial Stress Score Norms show an average score and percentile for all firms with similar demographic characteristics. These Norms can be used to measure where a business stands versus the norm for its peer group.
The Supplier Evaluation Risk Rating (SER Rating) calculates chances a company will get legal relief from its creditors or cease operations without paying creditors in full over next twelve months. The SER rating comes from D&B’s Financial Stress Score. The Financial Stress Score percentile serves as the basis for the SER Rating.
Once the Financial Stress Score percentile is determined, a second set of rules apply to figure the SER Rating. So the SER Rating provides a chance of global supplier failure. Local nations’ failure ratings are on a Class of 1 – 9. A 1 is businesses with the lowest chance of supplier failure. A 9 is companies with the highest chance of supplier failure.
There are two graphs in this part:
This graph splits your business’s risk category into high, moderate, or low.
A D&B Credit Limit Recommendation includes two recommended dollar guidelines:
1. A conservative limitation, recommending a dollar benchmark if a company’s policy is to extend less credit to minimize risk and
2. An aggressive limit, proposing a dollar benchmark if a firm’s policy is to extend more credit with maybe more risk.
These amounts come from a historical evaluation of the credit demand of customers in the U.S. payments database. These customers have a similar profile to the business being evaluated. So that is with respect to employee size and industry. The guidelines do not address if a business can pay that amount. And they don’t address if a particular customer’s total credit limit was met.
Each set of limits comes with an analysis of the risk category a business falls into. Or it’s D&B’s assessment of how likely they are to continue to pay their obligations within the agreed-upon terms and how likely they are to go through financial stress in the next twelve months.
Then this line graph encapsulates your company’s PAYDEX scores compared to the primary industry for the last four quarters.
A PAYDEX Score is Dun & Bradstreet’s proprietary dollar-weighted numerical indicator of how a company has paid its bills over the past year. The score is based upon trade experiences reported to Dun & Bradstreet by various vendors. In addition, the D&B PAYDEX Score ranges from 1 to 100; higher scores signify a better payment performance.
So here the report indicates your business’s percentage of payment within terms divided by various dollar ranges.
The section contains some detail on the payment experiences D & B has on file for your business. So this shows how quickly your company paid off its debts, how much credit was extended, etc.
Now, this section expands upon the prior one by adding report dates, paying records, selling terms, and the like.
So you will have to look at your own PAYDEX report to understand your company’s financial health.
You can get your PAYDEX report here and you can contact their Customer Service department (it’s a part of Dun & Bradstreet, as they also generate PAYDEX reports) here. D & B’s PAYDEX Customer Service phone number is here.
Finally, any report is only as good as the data it comes from. Dun & Bradstreet’s database includes over 250 million companies spanning the globe. So this includes around 120 million active firms and about 130 million companies which are out of business but kept for historical reasons.
D&B constantly gathers data and works to improve its analyses for the greatest degree of accuracy possible.
Now that you understand what goes into it, the main areas that Dun & Bradstreet reports on are delinquency amounts and time frames, amount of credit used, business history (e. g. time in business), and judgments and liens.
By keeping your credit utilization within reason (less than 30% of total available credit is best), clearing your debts ASAP and avoiding delinquency and late payments, and also accumulating some time in business, you can improve your D & B PAYDEX score over time. You can get better PAYDEX scores! Check out how this will help your company!