What Is a Paydex Score? - Heartland Financial Group

What Is a Paydex Score?

Building up a strong Paydex Score and a healthier business credit score is essential. Learn what a Paydex Score is and how it may affect you.  

Financial relationships are at the core of any business. It’s how you conduct transactions with others that influence your company’s reputation and improves your likelihood of success – especially with regards to long-term, profitable partnerships and positive business-to-business interactions with vendors, service providers, and critical lenders. Naturally, over the years, many different indices and metrics were developed to help financiers and B2B companies streamline the process of picking through potential partners and identifying investments that are worth their time.

The Paydex score is one of these, developed specifically to rate a company’s financial health and act as a strong indicator of their likelihood to pay off debts and loans on time or default on loans. A Paydex score is the equivalent of a business credit score and is issued by a credit reporting agency called Dun & Bradstreet.

Explaining the Paydex Score

Unlike personal credit scores issued by credit reporting agencies like Experian, the Paydex score rates businesses on a scale of 1 to 100, where the higher number represents a greater likelihood that a company is capable of settling its debts on time.

These scores are calculated by Dun & Bradstreet based on strictly verified transactional histories called Trade References, accumulated from lenders and vendors reporting on different businesses’ capabilities to pay their leases and loans.

Dun & Bradstreet only begin processing Trade References once a sufficient amount of data has accumulated on any given business. According to their information, they can process references from up to 875 individual business partners when calculating a company’s score.

The Paydex score is one of the multiple indices that Dun & Bradstreet offers lending organizations and financiers when considering financing partnerships as part of their larger Live Business Identity concept. Through large scale data accumulation and analysis, Dun & Bradstreet also review and release the:

  • Delinquency Predictor Score (DPS): This serves as an indicator of a business’ risk of defaulting or making a late payment on a scale of 1 (lowest risk) to 5 (highest risk).
  • Failure Score®: Rates a company’s likelihood to suffer from severe financial stress (such as bankruptcy) within the next 12 months on a scale of 1 (lowest risk) to 5 (highest risk).
  • Supplier Evaluation Risk (SER): Indicates a business’ likelihood of becoming inactive (and thus disrupting the supply chain) within the next 12 months on a scale of 1 (lowest risk) to 9 (highest risk).
  • And a few other indices on business health regard cybersecurity, working capital and creditworthiness, and Maximum Credit Recommendation.

At its heart, a Paydex score allows lenders and vendors to get a quick, numerical representation of your prior history as a lessee or lendee and determine fairer conditions and terms for potential financing – or, in the case of very low Paydex scores, deny financing outright.

How the Paydex Score Works

Your score is primarily determined by how you make payments on loans and leases. The more days your business is behind on a payment on average, the lower your score. A company that consistently always pays its bills on time will have a Paydex score of about 80.

Because only Dun & Bradstreet calculates Paydex scores, you will need to purchase a business credit report from them if you want to know your specific credit score. Dun & Bradstreet recommend that your business has at least four Trade References in the last two years to generate a Paydex score, to begin with. Credit card payments and the like do not count as Trade References. Examples of what this might include:

  • Commercial leases
  • Equipment financing
  • Equipment leasing
  • Larger business loans
  • Inventory financing
  • And more.

A Paydex score above 80 indicates that the business pays its dues in advance, with a 100 displaying that the company makes payments on average 30 days ahead of schedule.

As you might have figured, very few businesses can boast a Paydex score of 100. However, a Paydex score at or above 80 indicates that you keep your promises and make your payments on time. The lower the risk of investing in your business, the more favorable the terms tend to be.

For the curious, a Paydex score of 1 indicates that a business is more than 120 days late, on average, between payments.  

Determining and Changing Your Score

If you are unsure of what your score currently is, you will need to verify with Dun & Bradstreet by buying a business credit report on your company. Dun & Bradstreet’s specific product for monitoring a business’ financial health is the CreditSignal program. It will include the Paydex score and other indices. Note that you can also monitor your competitors’ financial health and credit history to get a good grasp of how you’re doing compared to others out in the market for a loan or lease.

Once you’ve got an idea of your score, you can get around to changing it if need be. This is generally simple to do, but not necessarily easy:

  • Take out business loans.
  • Create a credit relationship with reputable vendors in your industry.
  • Lease necessary equipment.

The more expensive the lease or loan, and the more recent, the more impact it will have on your Paydex score. The sooner you make your monthly payments, the higher your score will be.

Why Does Your Paydex Score Matter?

Why should you bother with a high Paydex score? Because for any business interested in longevity, long-term growth, and scalability, access to secure and reliable financing is a must.

Even if you don’t need to take risks with a big loan or lease right now, building up a strong credit history and a healthier business credit score is essential. This can help you secure the funding you will need when your business reaches the point where it must make significant investments to stay afloat or move on to the next stage.