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How Your Business’s Financial Health Determines Your Dun & Bradstreet Rating – Get the Skinny Here

Janet Gershen-Siegel
October 1, 2017
Dun & Bradstreet rating Credit Suite

Know Your Dun & Bradstreet Rating and You Can Conquer the Business World

It quite literally pays to know your Dun & Bradstreet rating.

Your Dun & Bradstreet Rating Report

A Dun & Bradstreet Report (also known as a D&B Report) is a database-generated report. The business services giant generates such a report in order to help its clients in making decisions about new credit applications.

The primary reason for a client using this kind of a report is to engage in credit risk monitoring of vendors, suppliers, and business partners. This helps companies make informed business credit decisions and avoid bad debt.

Dun & Bradstreet takes several factors into account in producing such a report. These include a predictor of payment delinquency; how financially stressed a company is compared to similar businesses; an evaluation of supplier risk; credit limit recommendation; D&B rating; and PAYDEX score. Let’s look at all these factors in turn.

Discover our Get Business Credit guide, with everything you need to know about building credit for your business.

Your Dun & Bradstreet Rating: Delinquency Predictor

Dun & Bradstreet uses predictive models to determine how likely a company is to be late with its payments. Predictive scoring is a means of using 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.

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. So this is events like delinquent payments. But predictive scoring is just a statistical probability, and not a guarantee.

Your Dun & Bradstreet Rating: Financial Stress Percentile

The Financial Stress Percentile compares your company in question to other businesses in the same region, business sector, 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 attributes.

These norms can help measure where your business stands versus the norm for its peer group.

Financial Stress ScoreDun & Bradstreet rating Credit Suite

Dun & Bradstreet generates Financial Stress Scores to predict the chance of business failure over the upcoming twelve months.

D&B defines business failure in several ways. One is as a company which gets legal relief from its creditors. Another is a company which ceases its business operations without paying off all its creditors in full. Yet another is a firm which voluntarily withdraws from its business operations thereby leaving unpaid obligations

Another way is a firm which enters into receivership or reorganization. Or it can be a company which makes some sort of arrangement for the benefit of its creditors. And all of this is based on the information found within D&B’s commercial database.

The score ranges from 1,001 to 1,875. A score of 1,001 represents the highest probability while a figure of 1,875 exemplifies the lowest probability 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 distinct groups, ranging from 1 to 5. A 1 represents businesses which have the lowest probability of failure, while a 5 represents firms which have the greatest probability 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 determine appropriate marketing or credit policies. For any businesses indicated as 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. So this is where a 1 percentile has the highest chance of failure. And a 100 percentile has the lowest chance of failure.

A financially stressed company can be as a firm which has discontinued operations following assignment of bankruptcy. Or it can be a business which has voluntarily withdrawn from operation with unpaid debts.

Yet another possibility is a firm ceased operations with loss to creditors. Or it could be a business is in receivership or reorganization. Another way is a firm has made some sort of an arrangement for the benefit of its creditors.

If your business has been late with its payments and has UCC filings against it, those will harm its financial stress score percentile.

Your Dun & Bradstreet Rating: Supplier Evaluation Risk Rating

The Supplier Evaluation Risk Rating (also called a SER Rating) calculates how likely it is that a company will get legal relief from its creditors or terminate its 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.

With the Financial Stress Score percentile for a company, a second set of rules apply to figure the SER Rating. The SER Rating provides a probability of global supplier failure. Local countries’ failure ratings have a Class of 1 – 9. A 1 represents businesses with the lowest probability of supplier failure. So a 9 represents companies with the highest probability of supplier failure.

Discover our Get Business Credit guide, with everything you need to know about building credit for your business.

Your Dun & Bradstreet Rating: Credit Limit Recommendation

A D & B Credit Limit Recommendation includes two recommended dollar guidelines:

  1. A conservative limitation. So this recommends a dollar benchmark if a company’s policy is to extend less credit to decrease risk and
  2. An aggressive limit. So this proposes a dollar benchmark if a firm’s policy is to extend more credit with potentially more risk.

These guideline amounts come from a historical evaluation of the credit demand of customers in the U.S. payments database who have a similar profile to your business. So this is with respect to employee size and industry. The guidelines do not address if your business can pay that amount. And they don’t address if you met a certain customer’s total credit limit.

Each set of limits comes with an analysis of the risk category your business falls into. Or it’s D & B’s assessment of how likely you are to continue to pay obligations within the agreed-upon terms. Plus there’s how likely you are to go through financial stress in the next twelve months.

Your Dun & Bradstreet Rating: D & B Rating

A D & B Rating helps companies quickly assess your business’s size and composite credit appraisal. The rating is based on information in your company’s interim or fiscal balance sheet, plus an overall analysis of your firm’s creditworthiness.

Your Dun & Bradstreet Rating: Rating Classifications

So the 5A to HH Rating Classifications show business size. This is based on worth or equity computations by Dun & Bradstreet. The figure matters because your company’s size can be an effective indicator of credit capacity. Dun & Bradstreet assigns these ratings to businesses supplying a current financial statement.

Your Dun & Bradstreet Rating: Composite Credit Appraisal

So this is a number, 1 through 4. And it comprises the second half of your firm’s rating. It reflects Dun & Bradstreet’s overall assessment of your business’s creditworthiness. Dun & Bradstreet’s analysis of company payments, financial information, public records, business age and other important factors, when available, are interpreted. So this is to generate a Composite Credit Appraisal.

If your company does not provide current financial information, you 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 contain a current financial statement. Employee Range (ER) Ratings apply to certain lines of business which are tough to classify under the D & B Rating system. These kinds of businesses get 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 needed, they will indicate as much in the reports. However, the absence of some pieces of information does not necessarily mean your firm is a poor credit risk.

Discover our Get Business Credit guide, with everything you need to know about building credit for your business.

Your Dun & Bradstreet Rating: PAYDEX Score

A PAYDEX Score is Dun & Bradstreet’s proprietary dollar-weighted numerical indicator of how your company has paid its bills over the past year. The score is based upon trade experiences reported to Dun & Bradstreet by a variety of vendors. So the D&B PAYDEX Score ranges from 1 to 100; higher scores signify a better payment performance.

Your Dun & Bradstreet Rating: D&B Data

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 firms and about 130 million companies which are out of business but kept for historical purposes.

D&B constantly gathers data and works to improve its analyses to ensure the greatest degree of accuracy possible. So working to improve your D&B credit rating will also make your business more fundable. And that is always the right thing to do.

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