What’s the Lowdown on Dun & Bradstreet Business Credit Reports?
Dun & Bradstreet credit reports have a lot of information reporting on them including multiple credit scores.
Your report might show many credit scores including your main PAYDEX credit score, along with D&B’s Supplier Evaluation Risk Rating score (SER) and D&B’s Supplier Stability Indicator score (SSI).
Details on Dun & Bradstreet Business Credit Reports
Dun & Bradstreet reports also list details on payments the business has made for each individual account, including their full payment record, their upper-credit limit, how much they currently owe on each account, how much is past due, what the terms of the account are, and when the account was reported and last updated.
More About Dun & Bradstreet Business Credit Reports
D&B reports also have extra information reporting including detailed financial information such as current assets, liabilities, working capital, net worth, sales, new profit and loss, and more.
And There’s More
In addition, D&B reports also list payment details for each account and detailed commentary to the report indicating payment patterns.
A Dun & Bradstreet Report (also known as a D&B Report) is a database-generated report. The business services giant generates such a report. This is to assist its clients in making decisions about new credit applications.
The main reason to use this kind of report is for credit risk monitoring of merchants, suppliers, and business partners. In turn, this helps companies make informed business credit decisions and avoid bad debt.
Dun & Bradstreet takes many factors into account in developing such a report. So these include a predictor of payment delinquency. They also include how financially stressed a company is compared to similar businesses. And they have an evaluation of supplier risk and credit limit recommendation. There are also a D&B rating and PAYDEX score. Let’s look at all of these factors in turn.
Dun & Bradstreet uses predictive models to ascertain how likely a company is to be late with its payments. Predictive scoring is a way to use historical data to try to predict future outcomes. It entails identifying the risks inherent in a future decision. So it does this by examining the relationship between historical information and the future event.
Hence, this represents an objective and statistically derived counterpart to subjective and intuitive analyses. Such scoring helps a business rank and order accounts based on the chance of an event occurring, like late payments. However, note that Predictive Scoring only represents a statistical chance. That is, it is not a guarantee.
Financial Stress Percentile
The Financial Stress Percentile compares the company in question to other businesses. So these are companies in the same location, business sector, number of employees, or number of years in the business. Financial Stress Score Norms show an average score and percentile for all organizations with similar demographics. These Norms can be used to benchmark where this particular business stands. So that’s in relation to the norm for its peer group.
Financial Stress Score
Dun & Bradstreet generates Financial Stress Scores to predict the likelihood of business failure over the next twelve months.
D&B defines business failure in several ways. One is as a firm which gets legal relief from its creditors. Another is a firm which ceases its business operations without paying all of its creditors in full. Yet another is a company which voluntarily withdraws from its business operations thereby leaving unpaid obligations
Another way is a business which enters into receivership or reorganization. Or it can be a firm which makes some form of arrangement for the benefit of its creditors. And all of this is based upon the information found inside D&B’s commercial database.
The score ranges from 1,001 to 1,875. A score of 1,001 represents the highest chance. While a figure of 1,875 represents the lowest chance of business failure.
If your company has a lot of lawsuits and liens against it, those will negatively impact your financial stress score.
Financial Stress Risk Class
This is a division 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 greatest chance of failure.
This Class makes it so a customer can quickly segment their new and existing accounts into various risk segments. This is to ascertain suitable marketing or credit policies. For any businesses with being Discontinued at This Location; Higher Risk; or Open Bankruptcy, those records automatically get a 0 score.
Financial Stress Score Percentile
A Financial Stress Score Percentile is a 1-100 ranking where a 1 percentile has the highest chance of failure. And a 100 percentile has the lowest chance of failure.
A financially stressed company is a firm with certain characteristics. It may have discontinued operations following assignment of bankruptcy. Another possibility is it has voluntarily withdrawn from business operation leaving unpaid obligations.
Yet another possibility is it has discontinued operations with loss to creditors. Or it could be in receivership or reorganization. Or it may have made some sort of an arrangement for the benefit of its creditors.
Supplier Evaluation Risk Rating
The Supplier Evaluation Risk Rating (also called a SER Rating) anticipates how likely it is that a company will get legal relief from its creditors. It also shows a chance if it will discontinue 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 calculated for a company, a D&B applies a second set of rules to figure the SER Rating. Hence the SER Rating provides a chance of global supplier failure. Failure ratings come under a Class of 1 – 9. A 1 represents businesses with the lowest chance of supplier failure. A 9 represents companies with the highest chance of supplier failure.
Credit Limit Recommendation
A D&B Credit Limit Recommendation includes two recommended dollar guidelines:
1. A conservative limit, suggesting a dollar benchmark if a company’s policy is to extend less credit to decrease risk and
2. An aggressive restriction, proposing a dollar benchmark if a firm’s policy is to extend more credit with possibly more risk.
These dollar guideline amounts come from on a historical evaluation of the credit demand of customers in the U.S. payments database. So these are customers with a similar profile to the business being examined. So this is with respect to employee size and industry. The guidelines do not address if a particular company can pay that amount. And they don’t address if a particular client hit their particular total credit limit.
Each set of limits comes with an assessment of the risk category a company falls into. Or it shows D&B’s assessment of how likely they are to continue to pay their obligations within the agreed-upon terms. And it also shows how likely they are to undergo financial stress in the next twelve months.
A D&B Rating is designed to help companies quickly assess a business’s size and composite credit appraisal. The rating comes from information in a company’s interim or fiscal balance sheet. Plus there’s an overall evaluation of the firm’s creditworthiness.
5A to HH Rating Classifications show company size based on worth or equity as calculated 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.
Composite Credit Appraisal
This is a number, 1 through 4, and it comprises the second half of a company’s rating. So it reflects Dun & Bradstreet’s overall assessment of that business’s creditworthiness. Dun & Bradstreet’s analysis of company payments, financial information, public records, business age and other important factors, when available, are analyzed 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. Furthermore, the 1R and 2R Rating categories indicate company size based on the total number of employees for the business.
These rating categories go to company files which do not have 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 get an Employee Range symbol based upon the number of employees and nothing else.
As a whole, when Dun & Bradstreet does not have all of the details they need, they will indicate 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.
A PAYDEX Score is Dun & Bradstreet’s proprietary dollar-weighted numerical indicator of how a firm has paid its bills over the past year. The score is based upon trade experiences reported to Dun & Bradstreet by various vendors. Plus, the D&B PAYDEX Score ranges from 1 to 100; higher scores signify a better payment performance.
Finally, any report is only as good as the data it comes from. Dun & Bradstreet’s database contains over 250 million companies spanning the globe. So this includes around 120 million active companies and about 130 million companies which are out of business. But they are kept for historical purposes.
D&B constantly gathers data and works to improve its analyses to assure the greatest degree of accuracy possible. To assure as accurate a report as possible, it quite literally pays to provide D & B with your company’s current financial statements. In that way, you will have a far more accurate D & B report.
And an accurate DB report means you’re far more likely to get business funding.
So, you can access your own Dun & Bradstreet Business Credit Reports on D&B’s main website page.