D&B® Insider Secrets – A View into the Business Credit World
By Scott Letourneau, CEO of Fast Business Credit, Inc. & Nevada Corporate Planners, Inc.
D&B® is a very important factor to the success of your business. It is one of the only ways someone can check your company from a financial prospective without having to get a subpoena. Most small business owners ignore the significance of D&B® to their business success. You may not know when an inquiry is made to your company. It may be the reason you are losing business, contracts, bids…
How D&B® works and secrets you can use to your advantage:
Dun & Bradstreet® is a 167-year-old company. They’ve been in existence prior to the Civil War.
What they have evolved into is a business information service. They have the largest private database in the world, as relates to business.
Dun & Bradstreet® is more than just a credit evaluation service. They also share insight on businesses, so companies can sell and market to other companies that have the characteristics of their ideal customer.
D&B® processes data; they assign a Dun’s number to a business entity similar to your Social Security Number.
The whole key to the D&B® database is being able to attribute individual pieces of information back to the proper company.
You want to make sure that the information attributable to your company is in D&B®’s database correctly.
How to effectively build business credit.
The most important thing is that your information is consistently and correctly reported in every aspect of your doing business.
When you’re doing business a new vendor, make sure the vendor has your name right in their database. If they report to D&B®, you want it to be attributable to your company.
Don’t allow any of your business partners, whether it is your customer or your vendor, or the government (as far as reporting taxes) have wrong information about you on file. Make sure it is spelled correctly; make sure the spaces and the commas and the periods are all consistently in the same location whenever they refer to your company, so that it’s easier for D&B® to attribute individual pieces of information back to your company.
Let’s discuss more of the basics, credit 101.
Credit is a powerful business tool. Like any power tool, you must use it properly, you must use it safely; you must learn how to use it before you actually start using it.
The idea of whether you’re extending credit to one of your customers or you are asking for credit from one of your providers, be it a bank or another vendor, credit is a tool that must be used properly.
There are roughly 18.4-million business entities in the United States today and the great majority is small business. There are only 1,000 in the Fortune 1,000. There are only 500 in the S&P 500.
There are some businesses that don’t take full advantage of the tool of credit. It’s not whether you need the credit, but someday you’re going to need to be on the radar. The most effective way to get your business on the radar so other companies can see you and you can expand in the future is to have your information logged accurately and correctly, as soon as possible.
It is in every business’s best interest to get into the system as soon as they can.
If you’re opening a mom-and-pop shop and you do crafts and your business is all walk-in traffic because your store is on the side of the highway, that’s all well and good. But when the day comes that you want to expand and get a business loan to build a warehouse or you want to take on a new supplier and get some goods on credit, if you’ve been doing everything cash up until now, you have handicapped yourself in the business world by not being on the radar soon enough.
There’s no time that’s too soon to start building credible business information and business credit.
It’s important to know that D&B® gets its information from literally thousands of sources daily. Every night, there are over one million individual updates to business information on the D&B® database.
Every state reports all of their new business registrations to D&B® electronically. Register your business and you will get on the D&B® radar.
Information is not published until it is corroborated. Just the fact that a business has registered does not mean it’s going to start a D&B® profile. They will identify it and they will put it in holding. As they get other pieces of information that can be attributed to that same business entity, they will start to put together a file.
Once the file has a minimum, they call it the Super 7, there are 7 distinct elements of corroborating information they must have.
What this all means is you have the business registration being the first event, then another piece of information comes through, like getting a Federal Tax EIN number assigned. That comes from the federal government.
Those are 2 distinct events. And if the name of the company, the address, the phone number, the principal’s name, and the zip code all match on both of those 2 pieces of information, they are considered to be corroborated, and now we have a positive entity.
Do not rush to D&B® to get the most information in your file as soon as possible, because that in itself doesn’t establish the track record of payment.
You do want all of your information correct. The next step is to systematically start doing business with your partners where credit is involved. If you buy with cash now, ask for 10-day terms; ask for 30-day terms. Get your bill, pay it on time. You don’t have to pay it in advance. You pay it on time. Whatever the terms that you negotiate with your suppliers, pay according to those terms. Pay it promptly and consistently. That’s how you build the trust part of the credit profile.
There is no silver bullet. Nobody is going to say, “Hey, you do this today and tomorrow you’ll have an impeccable credit rating with D&B®.” It doesn’t happen that quickly, but that doesn’t mean that you shouldn’t take a systematic approach to building your credit. Do it before you need it. Set that track record of consistent, timely payments with your vendors.
Credit reporting, be it business or consumer credit, is pretty much the same game. As a consumer, you do business with department stores, gasoline credit cards and your electric company. You pay your bills as a consumer, and the track record of your payment history gets reported to the consumer credit bureaus.
The business world is similar; businesses report payment history and track records to the credit bureaus, of which D&B® is one. There are others such as, TransUnion®, Equifax®, and Experian®.
Not every vendor reports to every credit bureau. The most effective way is to do business with the companies that do report to D&B®.
For example, in the arena of office supplies, you have several choices where to buy office supplies. Going to Wal-Mart®, Sam’s Club® or Costco® or whatever and buying a case of paper may not be your best option, because those are consumer-oriented stores.
You want to buy your office supplies from a business-oriented office supply store. Fill out a credit application to get their credit card and buy your office supplies from them. You may be paying a little bit more than you pay at Sam’s Club® or Costco®, but remember, this is a strategy and you are building your business credit profile.
Deal with the companies that deal with businesses, and chances are one of the companies do report to D&B®.
If they let you know that they report to D&B®, pay them on time. At the end of the month, when you’re running low on funds and you have to decide which bill you’re going to pay and which bill you aren’t going to pay, you’re going to pay the one that says they report to D&B®.
There are 3 scores that D&B® built. The Paydex score is track history of your past performance.
The Paydex score is calculated by how many days to terms you are late. If you’re 7 days late, that’s typically like a high 60, low 70-type score. If you pay everything in advance, you’ve got above 80, and that’s ridiculous, quite frankly. But you want to be in the mid-70’s on a Paydex score, and that means you generally pay things on time.
D&B® has 2 predictive scores that are used very heavily. One is the commercial credit score, which is a probability of your paying a bill late in the future.
The Paydex score is how you paid in the past. The commercial credit score is how likely are you to pay a bill late in the future.
It’s a simple 1-5 score, 5 being you’re likely to pay late and 1 being you’re not likely at all to pay a bill late.
That predictive score is based on your years in business, your capitalization, your Paydex score, how have you done in the past. There are about 22 factors that go into the commercial credit score.Most businesses will have a 3, which is average. A good business will have a 2, and an excellent business will have a 1, and a not-so-good business will have a 4 or a 5.
There is also the financial stress score. That is a predictive score that indicates the likelihood of your going out of business within the next year. Again, a one is very good. The biggest companies in the world are ones, which may or may not be good. We had a case with Enron, which despite all appearances was a good company, and then all of a sudden it was not so good.
The number of years in business is a big factor. A company that’s in business more than 5 years is more likely to survive. A company that’s in business less than a year is far less likely to survive.
The financial stress score is a predictable score on your chances of going out of business within the next year.
Now, the best way to have good scores is to pay your bills on time. There’s not much that you can do to affect your commercial credit score or financial stress scores. All you can do is have your information accurate in the D&B® system and pay your bills on time.
Now, let’s go back to the first thing I said, about having your information accurately in the D&B® system.
The chances are whenever you go onto DnB.com or call into the D&B® 800 number, or make some kind of inquiry to D&B®, you’re going to be put on a call list, where a sales rep will call you. That’s not necessarily a bad thing. Remember, they’re in business to sell information.
But here’s what you do. You tell the person who calls you that until your information on your company is pristine, in perfect condition in their files, they should not even consider selling you anything.
That’s going to trigger a series of events, and you’ll wind up getting 2 or 3 more sales calls, but they will make the effort to have your information correct in their system.
None of us like to have salespeople call us, but we’re salespeople too, and we have to call other people. Everybody has to sell.
But you tell them, “I will not even consider a D&B® contract or buying from D&B® until you have my information absolutely correct.” And they will put you in touch with a technician, who will go through an interview process and ask you, “Is this correct? Is that correct?”
And all during the process, once you get everything correct, you say to that person, “Okay, when is this going to be on my file? When is it going to hit my file, and what do I do if it’s still not right?” Now you will be in good shape!
About the Author: Scott Letourneau is the CEO of Fast Business Credit, Inc. & Nevada Corporate Planners, Inc. Over the past 14 years NCP has assisted more than 5,500 business owners form LLCs and corporations to get their business off to a fast start to profits™! Since 2003 FBC has helped business owners secure cash and vendor lines of credit and avoiding costly mistakes. For further assistance regarding the development of business credit for your business call Fast Business Credit, Inc. at 1-888-313-6333.