Paydex score – As a small business owner, few things are as important to the financial health of your business as your business’s Paydex score. Your Paydex score is the number that represents your credit standing. It is provided by the large Dun and Bradstreet reporting office. Most banks, equipment leasing services, and credit providers rely heavily on your Paydex score when making credit decisions. Your Paydex score not only influences your chances of obtaining credit, it also helps decide the amount of credit your business receives, as well as the payment terms that are offered. Consequently, your Paydex score is extremely important to monitor and improve.
How does your Paydex score improve?
The first step is to visit the Dun and Bradstreet website and purchase a copy of your report. If you don’t have a report, there are two options. The first option is to pay a service fee and create one through the D and B Credibility website. By subscribing to that service, you can set up a report in about two weeks. You can even provide a limited number of your own credit references that can be included in your report. The second option is to find a supplier who reports to D and B and apply for a business credit with them. Then that vendor can initiate a request to create a file for your company. This saves you the cost of setting up your own file, usually around $ 400.00.
By looking for five or six small vendors that offer 30 net terms to startups, and also report to D and B, you can have a good Paydex score established within a few months.
Use the major search engines to search and find network providers that offer products and services that you need anyway. An example would be looking for web hosting services that report to D and B. Since your business needs a website, why not look for a host that offers 30 net terms for business and that reports to D and B. We use Blue Ribbon Web Hosting (www.blueribbonwebhosting.com) offer terms of 30 days and also inform. Other service businesses such as SEO services, advertising services, cell phone services, etc. it may be found that it will also report.
Do I need to personally guarantee lines of credit and net-30 accounts?
The short answer is probably yes if you don’t do your research. If you don’t have great personal credit, you just need to look a little further for providers that don’t require a PG. Once you’ve established five or six reporting providers, your Paydex score should be high enough that it doesn’t require your personal guarantee. It’s just a bit more research to get started.
How do I increase my Paydex score?
The key to building your Paydex score fast and high is to pay your reporting providers 10 days in advance, not when they are due. This only applies to providers reporting to D and B, other providers can be paid on their normal terms.
Paydex scores are ranked from 0 to 100, with a score of 100 being the highest and almost impossible to achieve. A Paydex score of 80 or higher often means instant approval of business credit cards and vendor credit without a personal guarantee. A score of 75 or less generally means that you will have a hard time receiving new lines of credit.
What am I going to need?
To start your file, you must incorporate an LLC.
Being a sole proprietor will tie your personal credit score to your business credit score and you just won’t get the results you want. If possible, you may want to buy an LLC or a corporation that is two years old, known as a shelf corporation. This can cost three to four times more than forming a new corporation, but it can also lead to larger and larger lines of credit.
You cannot use your personal social security number for your business, you must obtain a FEIN number. Typically, the service that your LLC or Corp sets up can provide this for you for less than fifty dollars. A FEIN number works in much the same way as a social security number, but for businesses. If you bought an LLC or shell corporation, you may already have a FEIN number.
You will need to find five or six vendors that work with startups and that report. There are many lists online, as well as training services that can point you in the right direction to find net-30 accounts that are easy to qualify for.
Don’t let your personal credit get dragged into the process. If possible, take the time to find providers that work without personal guarantees. Once you’ve established enough of these providers, your Paydex score should be high enough that most loans no longer require it.
On large loans, a bank may want to review your personal credit. However, if your business credit is strong enough, you won’t have to put your own credit at risk. In cases where homeowners’ credit is bad, or in some cases very bad, there are ways to fix that problem. Most LLCs and corporations allow businesses to add a partner fairly easily. A good credit partner can be used on credit applications.
Once I have a high Paydex score, what do I do? Once your Paydex score is established, you can start expanding your vendor credit, applying for business credit cards, equipment leases, and bank lines of credit.