PAYDEX Score
The PAYDEX Score, from Dun & Bradstreet, assesses a business's payment history with vendors on a 1-100 scale, indicating its reliability in making timely payments. It's vital for securing business credit and favorable terms.
Key Takeaways
- The PAYDEX Score is a D&B business credit score reflecting payment timeliness on a 1-100 scale.
- A score of 80 indicates on-time payments, while 90-100 signifies early payments, which is highly desirable.
- A strong PAYDEX Score is crucial for real estate investors to access commercial financing, secure better loan terms, and build vendor trust.
- Improve your score by establishing multiple trade lines, consistently paying invoices early, and regularly monitoring your D&B credit report for accuracy.
- It is distinct from personal credit scores, focusing exclusively on the business entity's payment behavior.
What is the PAYDEX Score?
The PAYDEX Score is a proprietary business credit score developed by Dun & Bradstreet (D&B) that assesses a company's payment history with its vendors and suppliers. Ranging from 1 to 100, this score indicates how promptly a business pays its bills, with higher scores reflecting a stronger payment performance. For real estate investors, a robust PAYDEX Score is a critical component of their business credit profile, influencing access to financing and favorable trade terms.
How the PAYDEX Score is Calculated
The PAYDEX Score is primarily derived from a business's payment experiences reported to D&B by various trade references. These experiences detail whether a company pays its invoices early, on time, or late, relative to the agreed-upon payment terms (e.g., Net 30, Net 60). The scoring system is straightforward:
- 100: Payments made 30 days early
- 90: Payments made 15 days early
- 80: Payments made on time
- 70: Payments made 15 days late
- 60: Payments made 30 days late
- 50 or lower: Payments made 60+ days late or significant delinquencies
Why the PAYDEX Score Matters for Real Estate Investors
For real estate investors operating through entities like an Limited Liability Company (LLC) or corporation, the PAYDEX Score is crucial for several reasons. It helps lenders assess risk when evaluating applications for commercial mortgages, lines of credit, or other business loans. A high score can lead to better interest rates and more favorable loan terms, while a low score can result in higher costs or even loan denial. Additionally, a strong PAYDEX Score builds trust with contractors, suppliers, and other business partners, potentially leading to better pricing and payment terms on materials and services.
Improving Your PAYDEX Score
Building and maintaining a strong PAYDEX Score is an ongoing process that requires diligent financial management. Here are key steps real estate investors can take:
- Establish Trade Lines: Open accounts with suppliers and vendors who report payment experiences to Dun & Bradstreet. These are known as trade lines, and having several positive ones is essential.
- Pay Early or On Time: Consistently pay all invoices before or by their due dates. Aiming for early payments (e.g., Net 30 paid in 10-15 days) can help achieve a perfect 100 score.
- Monitor Your Report: Regularly check your D&B credit report for accuracy. Dispute any incorrect or outdated information that could negatively impact your score.
- Maintain Low Utilization: If you have business credit cards or lines of credit, keep your balances low relative to your credit limits.
Real-World Example
Consider an investor, REI Holdings LLC, seeking a $750,000 commercial loan to acquire a multi-family property. REI Holdings has diligently paid its contractors and suppliers (e.g., for materials, property management software, and marketing services) 10-15 days before their Net 30 due dates for the past two years. This consistent early payment behavior has resulted in a PAYDEX Score of 90-100. When applying for the loan, the lender views REI Holdings as a low-risk borrower, offering a competitive interest rate of 6.5% and a 20-year term. In contrast, another investor, Property Ventures LLC, with a PAYDEX Score of 60 due to frequent late payments, might be offered a higher rate of 8.0% or even denied the loan, potentially forcing them to seek more expensive hard money loans with less favorable terms.
Frequently Asked Questions
What is considered a good PAYDEX Score?
A PAYDEX Score of 80 or higher is generally considered good, indicating that a business pays its bills on time. A score of 90 or 100 is excellent, showing that payments are consistently made early, which is highly favorable to lenders and suppliers.
How long does it take to establish a PAYDEX Score?
It typically takes 30 to 90 days to establish a PAYDEX Score once your business has at least four trade lines reporting payment experiences to Dun & Bradstreet. The more trade lines and payment experiences reported, the faster and more robust your score will become.
Does my personal credit score affect my business's PAYDEX Score?
No, your personal credit score does not directly affect your business's PAYDEX Score. The PAYDEX Score is solely based on your business's payment history with its vendors and suppliers. However, for new businesses, lenders may consider the owner's personal credit as a factor until sufficient business credit is established.