What is Business Credit?
Your business credit record is the primary way that companies evaluate whether to do business with you—and on what terms. Companies rely on your business creditworthiness to make critical decisions, including whether:
• to sell to you
• to lend you money
• you are viable as a partner
• to lease the equipment you need to grow your business
• to increase your line of credit
• to help you carry more inventory at competitive prices
• to give you favorable financing rates and terms
• you stack up favorably against other companies competing in your market space
Business credit includes a variety of data points about your business, such as the date it started, the skills and experience of your top leaders, number of employees, and annual sales. This type of information is listed in your business credit profile, along with scores and ratings that are derived from your business’ past behavior to predict its future behavior. For example, your ability and willingness to pay your bills on time in the past is factored into your ability and likelihood of paying your bills in the future.
Dun & Bradstreet, 2008.
What’s a Business Credit Profile?
Your business credit profile is like your business’ résumé; it contains critical information that other businesses use when deciding whether or not to do business with you and on what terms.
Like a personal resume you use to obtain employment, it’s important that the information in your profile is accurate, complete and timely. No one knows your business better than you. You might have a thriving and profitable business, but when doing business with others, often what matters more is what is documented in the credit report they receive on you. Most companies want a complete and unbiased view of who you are (and how risky it might be to work with you). The business credit scores and reports give companies that want to do business with you a fast, objective measurement of your credit risk.
You should think about your business credit profile in terms of:
• What is in your credit profile? What is it telling other companies about you?
• How do your current business credit scores affect the interest you pay on your
• Did you get the best terms?
• Have your scores improved enough to consider refinancing, or extending your
• Do new suppliers extend you favorable credit terms or ask you to pay Cash on
• Are your competitors getting better terms for the same items?
• Have you lost a deal because your competitor had better credit?
If your answer to any of the above questions is “I don’t know”, your business credit profile may not be working to your advantage – it may actually be costing you money.
Why is Having Business Credit Important to MY Business?
Good credit is the lifeline of your business. It enables you to obtain funding for things like expansion, capital expenditures, research development, the cash necessary for survival, and staffing. It is the principal contributing factor to your business’ future growth. Good business credit also allows you to keep the cash you have to cover your cost of doing business; such liquidity allows you to respond quickly to time sensitive requirements without compromising daily operations.
It’s not just about getting access to financing; business credit has increasingly become the primary vehicle for setting terms on business loans, determining insurance premiums, and even setting lease payments. Good business credit can earn you lower rates, while strengthening your cash flow.
What’s in My Business Credit Profile?
Information that goes into creating a business’ credit profile comes from a variety of primary and secondary sources, such as:
• Payment and banking data from company suppliers
• Suits, liens and judgments, UCC’s, business registrations, incorporations, and bankruptcy filings from state and county courthouses
• Corporate financial reports
• Contracts, grants, loans, and debarments from the federal government
• Web mining
• News and media
• Yellow Pages and other print directories
• D&B business credit profile, direct investigations
and interviews with company principals (i.e. self-reported data) and other
companies that you work with
D&B Rating: an overall assessment of your business’s creditworthiness and viability.
PAYDEX Score: a predictive indictor that measures the likelihood of your business paying within an agreed-upon timeframe.
D&B uses statistical models to develop a company’s scores and ratings. The most significant contributing factor to that rating is the promptness with which you pay your bills. Mathematical methodology creates a score that shows, on average, how many days beyond terms your company pays and whether you pay within terms. This information is factored into almost every score or rating that D&B provides. The more prompt the payment history, the better your business credit scores and ratings will be.