How do business credit scores affect businesses in today’s economy?

Today more than ever, small businesses must be proactive in protecting their critical credit asset. In this still fragile economy, credit scores and indexes can make the difference between a company’s ability to fail or succeed.

Like consumers, scores play an important role in determining business credit. The right credit score is of great value when negotiating lower lease payments, approving business loans, or when a potential customer chooses a company for business-to-business (B2B) services.

Credit challenges can come in many ways. The sad reality is that a late payment or collection account for a specific debt listed on a company’s business report can lower the score by more than 40 points. This will immediately place a company in the high risk category! The amount of information processed on consumer and business credit scores is large and complex.

The important points that small business owners need to know to give a business access to financial tools that can help them land larger clients and earn higher income are:

Dun & Bradstreet Credit Score and Rating is the oldest and most popular provider of business credit ratings and credit ratings. Businesses with low D&B scores can be denied loans, cut or closed extensions of credit, turned down for offers and services by potential customers, or have their products removed. There are quite a few scores and indices used by this business credit bureau.

A Paydex score is used to assess creditors’ payment patterns and is weighted in dollars based on vendor accounts listed in a business report. Paydex scores range from one to 100. A strong Paydex score (80) gives businesses access to financial tools that can help them land larger customers and earn higher revenues. Below 60 could mean a lot of defaults or very little credit history. In this case, a business is likely to have trouble obtaining loans, credit extensions, or, at best, paying higher rates on leases.

A financial stress score is designed to help predict a business’s potential for failure. It indicates the probability that a company will obtain legal relief from creditors or cease operations without paying creditors in full during the next year. The score uses the full range of D&B information, including finances, comparative financial ratios, payment trends, public filings, demographics, and more.

Recently, companies have experienced challenges with these credit scores and their ability to meet business objectives. A fast-growing IT solutions and network provider was caught in a frustrating negative cycle. When your existing customers delayed payments on time, it caused a ripple effect of slow payments to vendors. It was agreed that they needed daily credit monitoring by a reputable credit restoration company and upgrades to offset the current credit problem dilemma. To date, as soon as a problem arises, it is addressed and scores can be maintained, if not increased. Legitimate business credit repair companies can improve credit scores by changing and adding information that can offset initial reductions and manage better scores. Some larger corporations like Wal-Mart won’t even look twice at potential vendors with a risk rating higher than six on their Dun and Bradstreet credit profiles. The causes of poor credit rating range from an accountant making late payments to such critical situations as accounts receivable that cannot be collected and cause bill delays. But once the damage is done, it is an uphill battle with the full realization of the consequences heavily burdened at best. Without constant attention, a business can really suffer from these credit dips.

Credit Fluctuations – Another credit challenge we’ve seen affect small businesses is when credit scores are in an excellent current position, but have shown negative fluctuations over the past 12-24 months. A Westchester doctor who started his own practice and applied for equipment leasing was turned down due to a poor scoring record. A collection showed up in your reports consistently over a seven-month period. Although the charge was in error and the bureau agreed to remove him from his profile, his past crime history was still visible. Although his current score was excellent, he was unable to obtain the financing he needed under his business name. Fortunately for him, his personal credit score was excellent and he was able to personally sign the team loan.

Being proactive and making sure scores are managed by a professional or someone within the company who can handle this task efficiently and responsibly can save enormous financial cost and stress. It is critical that small business owners stay abreast of current scoring requirements. In this economy, the right sources that provide cutting-edge information can make a big difference.

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