Whether you’re applying for a bank loan, seeking funding from an investor, or looking to organize trade credit terms with a supplier, you’ll likely find that the institution on the other end of the deal wants to know about your Paydex score.
Your Paydex score is kind of like a business credit score, speaking to your company’s creditworthiness and risk profile.
In this article, we’ll discuss the purpose behind Paydex scores, what they’re used for, why they’re important, and how to check and improve your own.
Definition and purpose of a Paydex score
A Paydex score is a business credit score assigned by Dun & Bradstreet (D&B). It evaluates a company’s creditworthiness and risk profile based on its history of payments.
Your Paydex score ranges from 0 to 100, with higher scores indicating better payment performance and, therefore, lower risk to creditors and lenders.
Paydex scores serve as a quick reference for vendors, lenders, and potential business partners, helping businesses to:
- Evaluate credit risk
- Negotiate payment terms
- Determine lending eligibility
- Monitor financial health
How Paydex scores are calculated
Dun & Bradstreet, the company that issues your Paydex score, uses a number of factors to calculate the holistic score. These include:
- Payment timeliness. This is the primary factor: whether a business pays its invoice on time early, or late.
- Trade references. Built using data reported by vendors, suppliers, and creditors.
- Payment trends. Consistency is important here. Consistent on-time payments increase your score, and vice versa.
- Amount and frequency of transactions. Larger and more frequent transactions carry more weight and improve your score.
Importance of a good Paydex score
What’s the point of paying attention to your Paydex score?
Here are five practical implications of having a good score:
- Access to credit. Lenders are more likely to approve loans or credit lines and provide better loan terms with lower interest rates to businesses with higher scores.
- Favorable trade terms. Vendors are more likely to offer extended payment terms to businesses with higher scores.
- Reduced financing costs. A good Paydex score minimizes the perceived risk of doing business with your company, giving you more bargaining power.
- Enhanced business reputation. A strong score indicates financial reliability, improving trust and credibility with shareholders.
- Easier business expansion. Businesses with strong Paydex scores can more easily secure credit and funding, enabling growth initiatives like inventory purchases, hiring, or opening new locations.
How to check your Paydex score
Want to discover your own Paydex score? It's fast and easy, here’s how.
Accessing your Paydex score
First, you need to register with Dun & Bradstreet, the company that provides Paydex scores. Head to their website, create an account and obtain a D-U-N-S Number (a unique identifier for your business).
Then, you purchase or subscribe to a business credit report service through D&B. you can then use D&B’s tools to track your Paydex score and monitor any changes over time, tracking how changes you make to your accounts payable strategy impact your score.
Understanding the Paydex score range
Having obtained your Paydex score, you’re probably wondering: what does this mean?
Generally speaking, a higher score is better. Diving a little deeper, though, we can examine how payment timeliness impacts Paydex scores:
Interpreting your Paydex score
What do lenders, vendors, and investors think of Paydex scores?
Here’s how different Paydex score categories are typically interpreted.
Score: 80-100 (Low Risk)
Scores in this range demonstrate strong financial reliability. Businesses with a score over 80 are likely to receive favorable trade terms and loan approvals.
Score: 50-79 (Moderate Risk)
In the moderate risk category, lenders and vendors may hesitate to extend credit or offer less favorable terms to protect themselves.
A score in this range indicates inconsistent payment practices or occasional late payments.
To improve your score, you can look to improve payment timeliness and dig into cash flow management.
Score: 0-49 (High Risk)
Any score below 50 is generally considered high risk.
It suggests chronic late payments and financial distress. Creditors may deny credit or only agree to extend credit with high interest rates and very restrictive terms.
If your Paydex score is in this range, the best strategy is to prioritize catching up on overdue payments. Also, consider communicating with vendors to negotiate payment plans and rebuild trust.
What impacts your Paydex score
What goes into a Paydex score?
Here, we explore the main factors that impact your final score.
Payment history and its influence on Paydex score
Your Paydex score reflects your company’s payment history. There are a few different factors considered here.
The most critical one is whether you make payments early, on time, or late. Payments made before the due date increase your score, and vice versa.
Consistency is also important. Consistently paying on time or early establishes a positive pattern and boosts your score. Sporadic payments or a mix of early and late payments can lower it.
Late payments hurt your score, but the impact depends on the severity of the delinquency. Payments made less than 30 days after their due date have a moderate impact, for example, while those made over 60 days late have a more severe impact.
Finally, your Paydex score considers the number of trade references you have. A larger number of vendors reporting timely or early payments strengthens your score.
Credit utilization and its effect on Paydex score
The Paydex score is payment-focused, so credit utilization isn’t a huge factor. However, it can indirectly impact your ability to maintain a good score.
High credit utilization can strain cash flow, which makes it harder to pay invoices on time. Additionally, vendors may hesitate to extend credit if they perceive over-leveraging, which can potentially reduce the number of trade references you have.
Other factors that can affect your Paydex score
Some other factors that can have an impact on your Paydex score include:
- Trade line volume. More tradelines with positive payment history can increase your score’s stability.
- Industry norms. The norms in your industry surrounding payment terms are important. Stay on top of them, and you’re more likely to improve your score.
- Errors in reporting. Inaccurate or incomplete data from vendors can lead to an unfairly low score, so it's a good practice to monitor your D&B report and dispute any errors you find.
- Cash flow issues. Operational challenges like delayed payments from customers and seasonal income fluctuations can affect your ability to pay on time which has a downstream impact on your Paydex score.
7 strategies to enhance your Paydex score
Looking to improve your Paydex score? Consider implementing these seven strategies.
1. Pay early or on time
The biggest way you can impact your Paydex score is by paying suppliers early, or at least on time.
Set up automated payments and reminders to ensure invoices are paid before or on their due dates.
2. Address late payments immediately
If you have overdue invoices, prioritize clearing them as soon as possible.
Communicate with your vendors and negotiate terms or set up payment plans where possible to avoid damaging supplier relationships.
3. Encourage vendor reporting
Work with vendors and suppliers who report payment history to D&B. Verify that your trade lines are being reported accurately so that your Paydex score reflects your positive payment habits.
4. Monitor your D&B credit report
Regularly review your D&B report, check for errors or missing information, and dispute inaccuracies to ensure your score reflects actual payment behaviors.
5. Diversify trade lines
Look to build relationships with multiple vendors and creditors. Through this process, you’ll build a broader credit history which reduces the impact of a single late payment.
6. Build a positive credit history
If you have a limited credit history, consider working on scaling up your credit lines, focusing on consistent and on-time payments.
7. Manage credit utilization effectively
Credit utilization behaviors can have an indirect impact on your Paydex score. Manage credit utilization effectively by:
- Avoiding overextending credit
- Maintain cash flow reserves to handle unexpected expenses or delays in customer payments
- Stagger payment schedules to align with your revenue inflows
- Inform your creditors early if you anticipate delays, or renegotiate terms to avoid a late payment being reported
How does Paydex scores benefit businesses?
A Paydex score benefits businesses by providing a transparent, simplified, and standardized measure of their creditworthiness. This helps them build trust with lenders, suppliers, and business partners, creating opportunities for growth.
Leveraging a strong Paydex score for financing
Paydex scores can have an impact on your company’s ability to access financing.
High Paydex scores (80 or above) signal lower credit risk, opening up:
- Easier loan approvals, as lenders see your business as more reliable
- Lower interest rates and other favorable loan terms
- Access to alternative financing like trade credit or equipment financing
Negotiating better credit terms with suppliers
Strong scores can also improve your ability to negotiate with vendors, allowing you to access:
- Extending payment terms that improve cash flow flexibility
- High credit limits
- Preferred customer status with benefits like faster shipping and exclusive deals
- Discount opportunities and other incentives
Establishing credibility with business partners
Finally, a high Paydex score can also enhance your company’s reputation and trustworthiness in the eyes of business partners.
It can help build supplier confidence by serving as proof of financial stability, and can even attract investors, many of whom assess Paydex scores as part of their due diligence.
Improve Paydex score with financial automation
Dead set on improving your Paydex score? Then you’d better get on top of your accounts payable.
BILL’s powerful accounts payable automation can help you schedule payments, track and forecast cash flow, and simplify your approvals process, all in the name of more timely payments to vendors.
Frequently asked questions about Paydex scores
What is a good Paydex score?
Generally speaking, a good Paydex score is anything over 80. Higher scores are better, and between 90 and 100 is a good place to aim for.
How often is the Paydex score updated?
Dun & Bradstreet updates Paydex scores on a monthly basis based on the latest payment data reported to them by suppliers.
Can a Paydex score be reset or improved quickly?
Paydex scores can be improved, but like most financial efforts, it takes consistent effort over the mid to long term.
To work on improving your own score, you can:
- Pay down outstanding debts
- Dispute any errors in your D&B credit report
- Make it a habit to pay suppliers early
- Increase your trade references
Who uses Paydex score?
The Paydex score is widely used by various stakeholders to assess a company’s creditworthiness.
These include:
- Lenders, banks, and other financial institutions
- Suppliers
- Investors
- Potential business partners
- Insurance companies
