PAYDEX Score: What it is and how to improve it
As a business owner, you’ll need to focus on building your business credit score, including the PAYDEX score from Dun & Bradstreet. Like a personal credit score, your PAYDEX score measures your business’s record of on-time payments and serves as a good indicator of your business’s overall creditworthiness.
Read on to learn more about what PAYDEX scores are, how they’re used and how to improve yours.
What is a PAYDEX score?
A PAYDEX score is a business credit score reported by the firm Dun & Bradstreet (D&B), tracking how often a business pays its vendors and suppliers on time. Scores range on a scale of 1 to 100, with higher numbers indicating a lower risk of late payment. A score at or above 80 shows that a business tends to pay its obligations in advance of their due dates. Between 50 and 79 suggests that payments are made within a month beyond term while a score below 50 shows that a business that tends to pay much later than its terms (as many as four months or more).
Unlike personal credit scores, PAYDEX scores only factor in how timely payments were made to vendors and suppliers from the past two years, with a greater emphasis on larger payments. Payments must be reported to D&B in order to count toward PAYDEX scores.
In order to set up a PAYDEX score, businesses must register with Dun & Bradstreet and receive a D-U-N-S number. This number is a form of identification for the business and can be used by lenders and other companies to find and report information like the PAYDEX score.
How is a PAYDEX score used?
Here’s who would use your PAYDEX score and why:
- Landlords: Before entering into a lease agreement, commercial real estate landlords will likely check a PAYDEX score in order to determine if your business is at risk for delinquent rent payments.
- Lenders: When determining whether to approve a business for a loan, or even a credit card, lenders may check your business’s PAYDEX score, which can also help set interest rates and terms for a small business loan.
- Suppliers: If a vendor seeks to enter into an agreement with a business, they’ll want to make sure that your business has a strong record of making payments by their due dates.
- Insurance companies: Insurance companies that enter into agreements with companies for business insurance may set their premiums based on your company’s PAYDEX score.
- Customers: While a PAYDEX score may not directly apply to the transactions between a business and its customers, those customers may want to know if your business has a track record of making late payments on its financial obligations.
How is a PAYDEX score calculated?
PAYDEX scores are calculated by compiling a business’s payments to suppliers and vendors on a rolling basis. Each supplier or vendor is considered a “trade reference,” and each trade reference must provide its details to Dun & Bradstreet in order for that trade to be considered as part of the buyer’s PAYDEX score. Each payment is recorded as a “trade experience”; however, some transactions, including credit card payments, don’t get counted as trade experiences.
D&B requires at least three trade experiences from at least two different trade references to calculate a PAYDEX score. Not all vendors automatically report trade experiences to D&B, so in order to establish a PAYDEX score, a business must ensure that those minimum reporting requirements are met.
Recent, larger credit is more important
Not all trade experiences have the same impact on a business’s PAYDEX score. Transactions are dollar-weighted, meaning that a greater emphasis is placed on transactions with a higher dollar amount — a $100,000 invoice would be more impactful than a $1,000 invoice, for example.
More emphasis is also placed on recent trades. By weighing more recent and larger transactions, the PAYDEX score presents more valuable information to interested parties. A late payment on a substantial transaction within the last month would hypothetically matter more than a small, on-time payment from several months ago if a lender is deciding whether to approve a business for a loan.
PAYDEX score ranges
PAYDEX scores can be divided into three ranges based on the risk of late payments.
- 80-100: Low risk of late payments
- 50-79: Medium risk of late payments
- 1-49: High risk of late payments
Here’s a full rundown of what each PAYDEX score means:
|100||Payment 30 days sooner than terms|
|90||Payment 20 days sooner than terms|
|80||Payment on terms|
|70||Payment 15 days beyond terms|
|60||Payment 22 days beyond terms|
|50||Payment 30 days beyond terms|
|40||Payment 60 days beyond terms|
|30||Payment 90 days beyond terms|
|20||Payment 120 days beyond terms|
|1-19||Payment over 120 days beyond terms|
How to check your PAYDEX score
In order to check your PAYDEX score, you’ll need to purchase a report through D&B. A subscription to CreditBuilder Plus costs $149 per month and allows you to review all of your Dun & Bradstreet ratings and submit trade references. You can also sign up for a free 14-day trial to view your Dun and Bradstreet business credit score, but you’d then have to upgrade to a paid version.
How to improve your PAYDEX score
Here are a few ways that you can help improve your business credit score:
- Pay your bills on time — or even early: As long as the trade experiences are reported to and approved by D&B, paying your bills before they’re due will help boost your score. On-time payments will also help, though not as much.
- Ask suppliers to report to Dun & Bradstreet: Some vendors may not automatically report to D&B, but you can ask them if they’ll submit the trade experiences to the firm. Increasing the number of on-time or early payments that are reported to D&B will help your PAYDEX score.
- Open tradeline accounts: Every reported vendor relationship is a tradeline, and opening additional tradelines can help you build a stronger PAYDEX score as long as payments are made on time.
- Don’t mix personal and business credit: In order to build your business credit, it’s important to keep your business and personal credit separate. Make sure that all of your business transactions are made through business bank accounts and credit lines, which can get reported as part of your PAYDEX score.
Frequently asked questions
What is a good PAYDEX score?
Good PAYDEX scores range from 80 (which indicates that, on average, payments are made on time) to 100 (the top possible score). Any scores under 80 indicate that a business tends to pay its obligations later than their due dates.
Is a 80 PAYDEX score good?
A PAYDEX score of 80 is a good score — it means that, on average, all of your business’s payments are made when they’re due. 80 isn’t the best possible score, but it indicates that you have a creditworthy business when others review your score.
How long does it take to establish a PAYDEX score?
There’s no set timeframe for calculating a business’s PAYDEX score, but there are a few necessary steps before you can generate one. First, you have to obtain a D-U-N-S number from Dun & Bradstreet to register your business, then you’ll need at least three approved transactions from at least two vendors.
What other business credit reporting scores are there?
In addition to the PAYDEX score from Dun & Bradstreet, other business credit score reporting agencies include the FICO Small Business Scoring Service (SBSS) and the Experian Intelliscore Plus.