D&B Business Credit Scores: What does it mean if you’re seeing increases, declines or showing high risk?
Have you recently been notified of a change to one or more of your D&B® business credit scores or ratings? Given the breadth of information contained in a company’s D&B credit file, it’s important to understand what various scores and ratings are meant to indicate about your business’s credibility. Changes to a company’s credit file are often the result of tangible factors like payment history and financial performance, and the predictive scores and ratings in most business credit files may use this information to assess the level of risk your company may present to business partners. A brief look at several important business credit scores and ratings should help you understand the recent change to your company’s credit file.
Delinquency Predictor Score
The Delinquency Predictor Score (DPS) estimates the likelihood that a business will be severely late in paying at least 10% of dollars owed, seek legal relief from creditors, or cease operations without satisfying its debts over the next 12 months. Dun & Bradstreet uses information it has acquired on your company to calculate this score. The DPS can actually be indicated in one of three ways: the score itself, a risk class, or a percentile.
The score will fall between 101-670, with a higher number indicating a lower probability of severe delinquency in covering debts.
The Delinquency Predictor Risk Class sorts this scoreable universe into groups numbering 1-5. A score of 1 indicates the lowest probability of a business failing to make good on its existing debt obligations over the next 12 months. The risk grows as class numbers increase, with 5 representing the highest risk of severe delinquency in payments over the following 52 weeks.
Finally, the Delinquency Predictor Percentile runs from 1-100, where a company in the first percentile has the highest risk of delinquency as defined by the DPS.
As you can see, while an increase in your company’s Delinquency Predictor Score may be a good thing, an increase in the risk class is a negative change. It’s important to distinguish between D&B credit scores and ratings in order to avoid confusion.
One of the more prominent business credit scores, the PAYDEX® is a dollar-weighted indicator of how promptly a company pays its suppliers and vendors. Many businesses submit payment experiences, known as trade references**, to Dun & Bradstreet. This payment history is then used to calculate the PAYDEX® Score. A business’s PAYDEX Score will fall between 1-100, with a higher score indicating a stronger record of on-time payments.
When a business’s PAYDEX® Score declines, it means, based on information in its database, Dun & Bradstreet has determined that there’s a greater risk the company will fail to repay its debts in a timely manner. A PAYDEX® Score increase suggests that, based upon recent payment trends, a company is more likely to meet its financial obligations according to the terms of its agreements.
Financial Stress Score
Using a business’s history, payments habits, and industry statistics, the FSS attempts to predict the likelihood that a company will cease operations or close down without satisfying its debts over the next 12 months. Much like the DPS, the FSS can be indicated in one of three ways.
The range of possible scores runs from 1,001-1,875, with a lower number indicating a greater probability that a business will experience financial stress in the next 12 months.
The Financial Stress Class represents the scoreable universe in one of 5 risk classes. Class 1 represents the lowest likelihood of stress, while 5 indicates the most risk in this regard.
The Financial Stress Percentile assigns a number between 1-100, with 1 suggesting the greatest likelihood that the business will experience severe financial stresses over the next 52 weeks.
Supplier Evaluation Risk Rating
Derived from a company’s FSS, the Supplier Evaluation Risk Rating gauges the likelihood that a firm will cease operations or close down without paying all of its creditors within the next 12 months. The SER is exclusive to suppliers, and the rating falls between 1-9. A rating of 9 indicates the highest amount of risk. The SER relies on statistical analysis of your business’s data, along with what D&B knows about the industry at large.
The two-part D&B Rating is composed of a company-size classification and Composite Credit Appraisal. The first element indicates a company’s size based on net worth or equity. Companies must supply D&B with their most recent financial statements in order for this classification to be provided. There are 15 possible classifications that can be assigned to a company.
The Composite Credit Appraisal is D&B’s judgment of a company’s creditworthiness. The score will fall between 1-4, with the lower number indicating better credibility.
D&B Viability Rating®
Consisting of four components, the D&B Viability Rating uses predictive risk indicators to indicate the likelihood that a business will fail, become inactive, or file for bankruptcy protection in the following 12 months. The four elements of the rating are the Viability Score, Portfolio Comparison, Data Depth Indicator, and Company Profile.
Both the Viability Score and Portfolio Comparison use a scale of ratings from 1-9, with the higher number indicating the greatest risk of business failure, dormancy, or bankruptcy in the next 12 months.
The Data Depth Indicator uses a letter score to show the amount of information available to D&B in calculating the previous two values.
Finally, the Company Profile result will fall between the letters A-X. Four factors are considered here: financial data, trade payments, company size, and years in business. The letter A represents the most robust profile.
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