Dun and Bradstreet and your Business Credit

What is D&B and How Can it Affect Your Business Credit?*

A Brief History

First established as The Mercantile Agency in New York City on July 20, 1841 by Lewis Tappan, the purpose of this organization was to establish a network of correspondents that would function as a source of reliable, consistent and objective credit information. Read more about the history of Dun and Bradstreet.

How is the Information Collected?

Dun & Bradstreet maintains the world's largest business database containing information on more than 100 million businesses worldwide including 38 million in the United States. D&B is, by far, the leading provider of business information for credit, marketing, and purchasing decisions worldwide. Today, more than 150,000 companies of all sizes rely on Dun & Bradstreet to provide the insight they need to build profitable business relationships with their customers, suppliers and business partners.

The information you'll find in the D&B database is gathered and compiled from millions of trade and bank transactions, federal bankruptcy filings, information from business owners, public utilities, and the offices of all the U.S. secretaries of state. They also scour hundreds of newspapers, magazines, trade publications, and electronic news services for data.

They also conduct millions of interviews with business owners and managers and they can have as many as 1,500 different data elements on any given company. In all, more than 200 million financial transactions are added each year to Dun & Bradstreet's database. And they continuously update the information - an average 1.5M times each business day - to help ensure it's the most up-to-date data available.

Why is it Important to Manage your Business Credit?

It is important to manage your business credit because your business credit can save you money or cost you money.

Have you ever been in any of the following situations?

• Denied a loan?
• Required to pay very high insurance premiums?
• Forced to pay Cash on Delivery (COD) for supplies?

If you don't know what's in your credit profile, then you can't be sure if it presents your company in the best light. A negative or non-existent credit profile can directly impact your bottom line.

Good credit is the lifeline of your business. It enables you to obtain funding for things like expansion, capital expenditures, research and development, and staffing. It is the principal contributing factor to your business’s future growth, not to mention the cash necessary for survival. Good business credit also allows you to keep the cash you have to cover your cost of doing business; such liquidity lets you respond quickly to time-sensitive requirements, without halting or compromising operations.

It's not just about getting access to financing; business credit has increasingly become the primary vehicle for setting terms on business loans, determining insurance premiums, even setting lease payments. Good business credit can earn you lower rates and strengthen your cash flow.

Your business credit record is the primary way that companies evaluate whether to do business with you—and on what terms. Companies rely on your business credit-worthiness to make critical decisions, including whether:

• to sell to you
• to lend you money
• you are viable as a partner
• to lease the equipment you need to grow your business
• to increase your line of credit
• to help you carry more inventory at competitive prices
• to give you favorable financing rates and terms
• you stack up favorably against other companies competing in your market space

Business credit includes a variety of data points about your business, such as the date it started, the skills and experience of your top leaders, number of employees and annual sales. This type of information is listed in your business credit profile, along with scores and ratings that are derived from your business’ past behavior to predict its future behavior. For example, your ability and willingness to pay your bills on time in the past is factored into your ability and likelihood of paying your bills in the future.

A business’ creditworthiness is ultimately determined by what are known as the “4 C’s of Credit” -- character, capacity, capital and conditions -- most of which can be found explicitly or implicitly in a company’s credit report.

Character includes factors such as: size, location, number of years in business, business structure, number of employees, history of principals, willingness to share information about itself, media coverage, liens, judgments or pending law suits, stock performance, and comments from references.

Capacity assesses the ability of the business to pay its bills. It also includes the structure of the company’s debt, the existence of an unused lines of credit and any defaults.

Capital assesses whether a company has the financial resources (obtained from financial records) to repay their creditors. In general, this portion of the credit report is the one most closely reviewed by the credit analyst. Heavy weighting is given to such balance sheet items as working capital, net worth and cash flow.

Conditions consider the external factors surrounding the business such as market fluctuations, industry growth rate, political/ legislative factors, and currency rates.

A credit manager or loan officer will answer these questions by locating and reviewing:

• requests for credit information
• customer supplied information
• bank information
• trade information

These factors are also taken into consideration by other service providers, such as insurance companies to set premiums. More than ever, companies are using automated decisioning, which means they input scores and ratings that summarize the 4 Cs into a financial model to determine the risk of doing business with you.

This process is similar to establishing your personal credit. If you’ve ever used a credit card, opened a bank account, or financed a car, you have a consumer credit file. Your consumer credit information is intended to help you find the money you need to run your household.

However, not every business has a business credit profile, which is one reason why some creditors will check the consumer credit information of a small business owner. But if you want to limit your personal liability while running your company, it’s best to establish your business credit and use it to run your business. Using your consumer credit to get money for your business may cause some problems:

Unless you are using the right credit information for the right purpose, you may be putting yourself into a situation where you will be unable to get financing – for your business or yourself – when you need it.

What's the Bottom Line?

1. Other businesses care about your credit profile no matter the size of your company. It's not just big banks and suppliers. You need to know what is in your profile because you may not appear creditworthy.
2. Every business transaction affects your profile. Paying on time protects your cost of borrowing and credit terms.
3. Information for new and small companies are just as exposed as larger more established companies. The information can be found from numerous sources and compiled into your profile. Make sure your data is accurate and true.
4. Your business credit profile can affect your cash flow. A stronger score may help maintain favorable terms and rates.

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*The information provided in this article is strictly for informational purposes only. Please consult with your financial advisors regarding any aspects of your credit profile.